Vertical Integration, Appropriable Rents, and the Competitive Contracting Process.¶
Klein, B., Crawford, R. G., & Alchian, A. A. (1978). Vertical Integration, Appropriable Rents, and the Competitive Contracting Process. Journal of Law and Economics, 21(2), 297-326.
Cited by¶
6 citations across 6 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Incomplete Contract
- The discretion-abuse failure mode the prime names appears precisely as hold-up: the residual-rights holder can, ex post, threaten to withhold cooperation to extract the other party's specific investment, which distorts ex-ante investment incentives.
This sourceThe hold-up problem — the residual-rights holder threatening to withhold cooperation ex post to expropriate specific investment, distorting ex-ante incentives.
- The discretion-abuse failure mode the prime names appears precisely as hold-up: the residual-rights holder can, ex post, threaten to withhold cooperation to extract the other party's specific investment, which distorts ex-ante investment incentives.
- Relationship Specific Investment
- Put numbers on it: the tooling cost the supplier $10M and, used to make this automaker's part, generates output the supplier can sell for, say, $12M over the contract — an inside-relationship value of $12M.
This sourceFormalizes appropriable quasi-rents from specific assets and the hold-up problem, using the customized-asset (Fisher Body/GM) case.
- Put numbers on it: the tooling cost the supplier $10M and, used to make this automaker's part, generates output the supplier can sell for, say, $12M over the contract — an inside-relationship value of $12M.
- Transaction Costs
Domain-specific¶
- Hold-up Problem
- The Fisher Body / General Motors relationship (Klein, Crawford, and Alchian, 1978) is the field's origin case.
Supported in partVerified against the source
- The Fisher Body / General Motors relationship (Klein, Crawford, and Alchian, 1978) is the field's origin case.
Mechanisms¶
- Make–Buy–Partner Review
- Outsource a function that requires relationship-specific investment and the buyer can find itself exposed to the hold-up problem — once you depend on a specialized supplier, that supplier gains leverage to renegotiate on worse terms.
This sourceExplains how relationship-specific investment creates appropriable quasi-rents and exposes the investing party to opportunistic ex post renegotiation by its trading partner.
- Outsource a function that requires relationship-specific investment and the buyer can find itself exposed to the hold-up problem — once you depend on a specialized supplier, that supplier gains leverage to renegotiate on worse terms.
- Value-Destruction Red Team
- A structured adversarial review is how latent negative-sum strategies — the hold-up problem, where one party, once another has sunk an irreversible investment, exploits that dependence to extract value — get named before they can be sprung.
This sourceExplains hold-up as opportunistic appropriation of quasi-rents after a counterparty makes a specialized investment.
- A structured adversarial review is how latent negative-sum strategies — the hold-up problem, where one party, once another has sunk an irreversible investment, exploits that dependence to extract value — get named before they can be sprung.
Verification¶
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