Organizations and Markets

Ben Klein’s Reply to Coase

| Peter Klein |

Ben Klein’s new paper, “The Economic Lessons of Fisher Body – General Motors,” appears in the February 2007 issue of the International Journal of the Economics of Business. He is not about to give Ronald Coase the last word. Indeed, Klein writes, the newest evidence on the history of the relationship between Fisher and GM confirms his earlier claim that GM’s acquisition of Fisher in 1926 was a response to opportunistic behavior by Fisher. This evidence

sheds new light on the conduct underlying these events, most importantly on how Fisher Body accomplished its holdup of General Motors in 1922. . . . The analysis presented in this paper reconciles [my] previous evidence of Fisher Body’s reluctance to locate its body plants adjacent to GM assembly facilities and Fisher Body’s reduction in its capital to sales ratio with [Coase’s] new evidence regarding contract restrictions on the use of inefficient production technology and the lack of mis-located plants. In the process we not only more fully explain what happened in the Fisher Body-General Motors relationship but also provide significant insights into the economics of holdup behaviour. The conclusion that Fisher Body held up General Motors not only stands, but is substantially strengthened by the analysis because Fisher’s conduct is shown to be consistent with what we would expect from economics.

What of Coase’s contention that there was no holdup, and that the entire case illustrates economists’ tendency to disregard the facts? (more…)

11 March 2007 at 11:20 pm Peter G. Klein 2 comments