Once a party has invested in a relationship-specific asset, the other can renegotiate, so the investment is never made.
Klein, Crawford and Alchian's case was Fisher Body and General Motors: dies built for one buyer's cars have no other use, so the buyer can renegotiate afterwards. GM eventually bought the supplier outright, which is the standard remedy.
In practice
- A supplier who retools a factory for one customer's specification discovers the price is renegotiated once the tooling is installed.
- A contractor who buys equipment for a single client's site finds the day rate revised at the first renewal.
- Further reading
- Wikipedia
- Subject
- Games & Strategic Interaction
- Essay
- The recurring shapes of conflict and cooperation