GM-Fisher: Yet More

26 September 2008 at 12:43 pm Peter G. Klein 2 comments

| Peter Klein |

The debate over the acquisition of Fisher Body by General Motors, like the Energizer bunny, keeps going, and going, and going. . . . The new issue of Industrial and Corporate Change has two more papers, “Lawyers Asleep at the Wheel? The GM–Fisher Body Contract” by Victor Goldberg and “The Enforceability of the GM–Fisher Body Contract: Comment on Goldberg” by Ben Klein. Here are the abstracts:

Goldberg: In the analysis of vertical integration by contract versus ownership, one event has dominated the discussion — General Motors’ (GM) merger with Fisher Body in 1926. The debates have all been premised on the assumption that the 10-year contract between the parties signed in 1919 was a legally enforceable agreement. However, it was not. Because Fisher’s promise was illusory the contract lacked consideration. This note suggests that GM’s counsel must have known this. It raises a significant question in transactional engineering: what is the function of an agreement that is not legally enforceable?

Klein: Goldberg unconvincingly claims that the General Motors (GM)–Fisher Body contract was in fact legally unenforceable. But even if Goldberg’s contract law conclusion were correct, it is economically irrelevant. It is clear from the actions of Fisher and GM and from the testimonial and other contemporaneous evidence that both transactors considered the contract legally binding and behaved accordingly. Therefore, proper economic analysis of the Fisher–GM case should continue to assume contract enforceability, and the economic determinants of organizational structure illustrated by the case remain fully valid.

Entry filed under: - Klein -, Business/Economic History, Theory of the Firm.

Notes from the Economic History Association Meeting Mankiw: Defer to the Philosopher-Kings

2 Comments Add your own

1. Andrea Mangani | 29 September 2008 at 4:47 am

Incredible. Today, GM versus Fisher Body is a theoretical paradigm. Thousands of students are requested to know the story along with the established theories of the firm. We’d better start thinking of a World Conference in 2026 to celebrate the anniversary. Well, GM probably will sell Fisher in the meanwhile. Don’t worry: we’ll use the same example (it is an example, isn’t?) to explain the theory of vertical disintegration.
2. spostrel | 29 September 2008 at 5:38 pm

I actually think it’s encouraging that we are seeing a debate in depth on one case as a critical test of theory. It’s a lot better than hand-waving about examples no one fully understands or large-sample studies that aggregate very dissimilar cases.

And to suggest that if integration made sense in 1926 it has to make sense in 2008 is silly.