The General Motors and Fisher Body Case Study by Benjamin Klein, Robert Crawford, and Arman Alchian

The General Motors and Fisher Body Case Study

The first paper referring to the case study was written by Benjamin Klein, Robert Crawford, and Arman Alchian, "Vertical integration, appropriable rents and the competitive contracting process." (Klein et al, 1978). It discusses "possibility of post contractual opportunistic behaviour" (Klein et al., 1978 p297) and is a great example of vertical integration used to relieve a hold up in the face of assets specificity, as occurred between GM & Fisher body. The paper has gone on to be considered the “Prevailing view” of the case study, and is supported by other papers.

In 1998, Klein refers again to the Fisher body (FB) - General Motors (GM) Case, in his paper "Vertical Integration as organised ownership: the Fisher body - General motors Relationship Revisited". From the opportunistic behaviour perspective, Trachtman (1996) mentions the case of FB - GM. Others also specify that the case has been turned into a famous example such as Che & Hausch, (1999), Zingales, (2000); Itoh & Morita (2006) and described as "the paradigm example of Vertical integration" (Baird, 2003, p24) and has been widely used, (Williamson, 2002).

During the beginning of the 20th century car production consisted of individually built open wooden cars. In 1919, production methods had developed to closed bodies, mostly metal cars and specific equipment was required. (Klein et al., 1978). So by 1919 GM & FB entered into a 10year contract for closed auto bodies (Coase, 2000). In conjunction with the contract, GM obtained 60% of Fisher Body, however, the Fisher brothers maintained control of their company for 5 years. Klein et al (1978) describes how GM agreed to buy all closed auto bodies from Fisher Body to help ...

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..., there is a small chance that unexpected events occurs, driving the relationship away from the so called 'self enforcing range' as Klein (1996) described it and a hold up results from this.

This idea on hold up's can be compared with the notion that a hold up implies deceitful behaviour (Klein 2010), Coase (2006, p.260) also suggests that 'Opportunism is analogous to fraud". Williamson tends to describe hold up's in consideration to deception stating "By opportunism, I mean self-interest seeking with guile. This includes but is scarcely limited to more blatant forms, such as lying, stealing, and cheating. Opportunism more often involves subtle forms of deceit... More generally, opportunism refers to the incomplete or distorted disclosure of informations, especially to calculated efforts to mislead, distort, obfuscate or otherwise confuse" (Williamson 1985, p.47)