General-purpose equipment still cannot prevent subcontractor lock-in

Evidence

Even when a subcontractor takes the precaution of investing solely in general purpose equipment it is possible to be locked into a relation. This occurs when a generalized capacity expansion is made only because of the prospect of selling a large amount of a particular product to a particular client. If the contract is then prematurely terminated the subcontractor is left with a large overhang of excess capacity that can only be sold off at distress prices. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2589

Categorization

• XREF: Connects to rational-choice accounts of asset specificity and hold-up (Williamson and game theory), and to the reader’s Hardin focus on observable constraints on opportunistic behavior — the capacity expansion is a costly precommitment that can be exploited.