Institutional Constraints on Organizations: The Case of Spanish Car Dealerships

Benito Arruñada (), Luis Vázquez and Giorgio Zanarone

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We show that organizational choice in a sample of Spanish car distributors has been subject to institutional constraints causing substantial underperformance. Even though the original choice between franchising and vertical integration was seemingly aimed to contain moral hazard for both distributors and manufacturers, it has been subject to start-up constraints and switching costs. While the market for franchises remained underdeveloped, information asymmetries led to the opening of integrated outlets. Their subsequent conversion into franchised outlets probably involved prohibitive transaction costs. Consequently, they performed worse than would have been expected had they been independent, as confirmed by the systematic improvement observed when they were in fact converted. The timing of such conversios suggests that switching costs were prohibitive until firms developed a substantial cushion of temporary contracts, previously forbidden by regulation.

Keywords: Vertical integration; ownership; distribution; networks; franchising (search for similar items in EconPapers)
JEL-codes: D23 L14 L22 L81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff
Date: 1999-01, Revised 2007-06
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Related works:
Journal Article: Institutional constraints on organizations: the case of Spanish car dealerships (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:upf:upfgen:348

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