Economics, explained from scratch
Owning your supplier does not end the haggling
A new economics paper shows where the haggling goes instead.
vizmaya desk · 1 November 2026
If you buy the supplier, who ends up haggling with whom?
Source: Ellingsen and Miettinen (2026), Helsinki GSE Discussion Paper 36, p.2
The hook
Two sides gain from a deal. One time in 5, they still walk away.
That is the paper's own example. Both sides would be better off. They fail anyway, because each one stands firm.
Why would anyone walk away from free money?
Source: p.27 (example value, 1 in 5); p.15. Example, not a measurement.
The old story
Buying from outside means haggling. Owning the supplier means red tape.
Outside supplier
You haggle over every deal. Sometimes you fail to agree.
Owned supplier
No haggling. But big organisations are slow and messy.
That was the standard picture for decades. It is a fair one, and it is easy to remember.
Is red tape really the only price of owning?
Source: p.2 (the view of Williamson and Masten, as the paper describes it)
The test case
Before 1919, General Motors had plenty of body makers to pick from.
Car bodies were new. Makers of horse carriage bodies could switch over without much trouble.
So GM bought bodies from several suppliers at once.
What changed when GM needed far more bodies?
Source: p.6
The timeline
A ten-year deal ended after seven. The last fight was Flint versus Detroit.
Demand for GM's closed-body cars boomed. GM signed Fisher Body to a ten-year contract in 1919. In 1926, after a fight over where to build one huge plant, GM took Fisher over.
Why would GM end a deal it already had?
Source: p.6; outside check: organizationsandmarkets.com. Seven years and three years left are computed from 1919, 1926 and a ten-year term. Historians dispute this case (p.6, note 12).
The crack
Every new plant meant another negotiation.
GM wanted each body plant next to its own assembly plant. That saved time and shipping.
Fisher sometimes wanted other places, closer to its other customers. The contract let Fisher decide, and most talks ended with GM's choice.
Was this a one-off fight, or a pattern?
Source: p.6, citing Klein (2007). I did not read Klein. Illustration, not a map.
The turn
Both sides plant a flag. If the flags clash, there is no deal.
Say there is 100 to share. Each side announces, "I will take 70 and no less."
Together they ask for 140. Only 100 exists. Both walk away with nothing.
Does it matter who owns what?
Source: pp.14 to 15 (how the paper models firm stands). The 70 and 100 are a made-up example.
The swap
Owning the supplier does not delete the haggling. It moves it.
"Plan" means what each side wants to do with the machine. Your plan is the one you built it for. Theirs is whatever else it can earn.
So which side of the table do you want to be stuck on?
Source: pp.20 to 21 (equations 9 and 10), p.25
The result
In the paper's example, the best choice flips at one chance in three.
Below one chance in three that your plan wins, stay separate. Above it, own the supplier.
Is that crossing point luck? It follows a simple rule.
Source: pp.20 to 21, p.27 (values 4, 2, 1 and 4/5); the points are computed from those values.
The rule
Own your supplier when your plan has the bigger average prize.
Add up the odds. If your plan pays more on average, own. If theirs pays more, stay separate.
GM's demand grew, so its own plan kept getting worth more. The paper reads the 1926 takeover that way.
What if neither choice is safe?
Source: p.23, Proposition 7; pp.6 to 7. The "2 versus 2" is computed.
At the crossing, your plan pays 4 one time in three and 1 otherwise. That averages 2. Their plan pays 2 every time. Tie.
The twist
Add a second supplier and the failures drop from 1 in 5 to none.
Each supplier knows you can walk to the other one. So nobody plays tough. Nobody risks losing the job.
If it works that well, why not always keep two?
Source: p.15, Proposition 2; p.27 (the 1 in 5)
The catch
A buyer may pay for a second supplier just to keep a bigger slice.
The second supplier needs its own machine. In the example, the buyer's slice goes from 0.4 to 0.6. The total pie lost is 0.2 either way.
How far can you trust a model like this?
Source: p.24 (equations 17 and 18). Computed at chance 0.5 and entry cost 2.2. Compared with one independent supplier.
The limits
This is a model, not a measurement.
No real-world test
The authors know of no study checking whether demand drives owning.
One round only
No trust builds up. Real firms deal again and again.
Everyone knows everything
Secrets about how valuable a plan is could change the result.
The case is disputed
Economists still argue about what really happened at Fisher Body.
So what can you still take from it?
Source: p.10, pp.25 to 26, p.6 note 12. Not found: any later test or reply.
The payoff
Before you merge, outsource or hire in-house, ask three things.
- 1When will the haggling happen: when my plan wins, or when theirs does?
- 2Whose plan for this asset has the bigger average prize?
- 3Could a second supplier make the haggling vanish, and is the extra machine worth it?
Want to check the numbers? Sources are next.
Source: pp.22 to 24, p.26. Advice drawn from the model's logic, not tested in the real world.
Sources and method
Where every number comes from
Paper: Tore Ellingsen (Stockholm School of Economics) and Topi Miettinen (Hanken School of Economics, Helsinki GSE), "Markets, Contracts, and Hierarchies: How Bargaining Frictions Affect Governance," Helsinki GSE Discussion Papers No. 36, revised 9 January 2026. hdl.handle.net/10419/316353.2
Second source for 1919 and 1926: Coase and the Myth of Fisher Body. More from us: vizmaya stories.
Method: every chart uses the paper's own example (values 4, 2, 1 and 4/5, p.27) and its formulas (pp.20 to 24), recomputed by us. These are example numbers, not real-world data. Gaps: no citation record found; the paper has no DOI; the Fisher Body history rests on one outside page.
Pictures: slide 4, horse carriage in Seattle, Arthur Churchill Warner, public domain, Wikimedia Commons. Slide 6, Fisher Body Plant 21, Andrew Jameson, CC BY-SA 3.0, Wikimedia Commons. Other visuals are drawings made for this story. Credit: the ideas are the authors'. Errors in the retelling are ours.
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vizmaya desk · 1 November 2026