Hold-Up Problem
Introduction:
Economists have a very well-established theory of market trading and are on the way to processing a similarly well-developed other theories of the firms (Hart, 1995). Particularly, neoclassical theory of the firm, the dominant economics paradigm, has influenced and been influenced by developments in regulated industries can be the foundation to explain many other theories.
Whether a company should expand the scale and scope of their business or not still is the controversial question. It is believed that this action brings many benefits for companies such as manufacturing at lower costs. However in some cases they also have their own disadvantages. To understand more deeply and address this problem we base on the neo-classical theory of the firm and the result in analysis “hold-up problem”
This paper begins by analysing the success of neo-classical in explaining scale and scope of firms. It will then go on to analyse imperfect contracts and specific investments in the transaction cost theories. Next, the effects of the property right approach on economies of scale and scope are evaluated through method to solve this problem. In accordance with the explanations, the example of General Motors and Fisher Bodies bring the deeper insight into this theory.
1. The success (strengths) of neo-classical in explaining scale and scope of firms. As can be seen from neo classical theory, this theory stress on technology in general and return to scale in particular. Thanks to this, a firm can draw the determinants of size of firm. Furthermore, this theory also is very useful for analysing how the firm’s optimal production choice varies with input and output prices and for understanding the aggregate behaviour of an industry and for studying the consequences of strategic interaction between firms. To be more specify, it is believed that economies of scale are simply properties of the firm’s production and cost functions except overhead costs (Joseph
Economists have a very well-established theory of market trading and are on the way to processing a similarly well-developed other theories of the firms (Hart, 1995). Particularly, neoclassical theory of the firm, the dominant economics paradigm, has influenced and been influenced by developments in regulated industries can be the foundation to explain many other theories.
Whether a company should expand the scale and scope of their business or not still is the controversial question. It is believed that this action brings many benefits for companies such as manufacturing at lower costs. However in some cases they also have their own disadvantages. To understand more deeply and address this problem we base on the neo-classical theory of the firm and the result in analysis “hold-up problem”
This paper begins by analysing the success of neo-classical in explaining scale and scope of firms. It will then go on to analyse imperfect contracts and specific investments in the transaction cost theories. Next, the effects of the property right approach on economies of scale and scope are evaluated through method to solve this problem. In accordance with the explanations, the example of General Motors and Fisher Bodies bring the deeper insight into this theory.
1. The success (strengths) of neo-classical in explaining scale and scope of firms. As can be seen from neo classical theory, this theory stress on technology in general and return to scale in particular. Thanks to this, a firm can draw the determinants of size of firm. Furthermore, this theory also is very useful for analysing how the firm’s optimal production choice varies with input and output prices and for understanding the aggregate behaviour of an industry and for studying the consequences of strategic interaction between firms. To be more specify, it is believed that economies of scale are simply properties of the firm’s production and cost functions except overhead costs (Joseph
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