Question:
Explain what happened in the Fisher – GM Motors case (see extract on p241). Why does this constitute a ‘hold up problem’?
Please read the extract from the following academic paper: Hart, O (1995)
“Why did GM and Fisher Body not simply write a better contract”?
What are the sources of “Transactions Costs” according to this article?
What is an “Incomplete contract”? How and why do there arise in business dealings?
What are “relationship-specific investments” and why might these create ex-post bargaining problems?
Why might the hold-up problem lead to underinvestment?
“The division of gains from trade will depend on the ex-post bargaining strengths of the parties.” Explain.
To what extent might the following provide solutions to the business hold up problems:
Finding alternative suppliers
Mergers or joint ventures
