Completing contracts ex post: How car manufacturers manage car dealers

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Review of Law and Economics, 1 (1), pp. 149-173, 2005
To cite or link this document: Arruñada, Benito Garicano, Luis Vázquez, Luis
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa 1998-09-01
dc.identifier.citation Review of Law and Economics, 1 (1), pp. 149-173, 2005
dc.description.abstract This article illustrates how contracts are completed ex post in practice and, in so doing, indirectly suggests what the real function of contracts may be. Our evidence comes from the contracts between automobile manufacturers and their dealers in 23 dealership networks in Spain. Franchising dominates automobile distribution because of the need to decentralize pricing and control of service decisions. It motivates local managers to undertake these activities at minimum cost for the manufacturer. However, it creates incentive conflicts, both between manufacturers and dealers and among dealers themselves, concerning the level of sales and service provided. It also holds potential for expropriation of specific investments. Contracts deal with these conflicts by restricting dealers’ decision rights and granting manufacturers extensive completion, monitoring and enforcement powers. The main mechanism that may prevent abuse of these powers is the manufacturers’ reputational capital.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 267
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.title Completing contracts ex post: How car manufacturers manage car dealers
dc.type info:eu-repo/semantics/workingPaper 2014-06-03T07:13:55Z
dc.subject.keyword Business Economics and Industrial Organization
dc.subject.keyword franchising
dc.subject.keyword incomplete contracts
dc.subject.keyword self-enforcement
dc.subject.keyword automobile
dc.rights.accessRights info:eu-repo/semantics/openAccess

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