Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth While Creating Value by Todd Zenger

Author:Todd Zenger [Zenger, Todd]
Language: eng
Format: epub, mobi
Tags: How to Solve the Puzzle of Sustaining Growth while Creating Value
Publisher: Harvard Business Review Press
Published: 2016-05-24T00:00:00+00:00

The Holdup Problem

My first exposure to the holdup problem was part of freshman writing class on the topic of Leland Stanford and the railroad. My research project described an extreme version of the classic holdup problem. In 1869, Southern Pacific Railroad announced it would lay tracks through California’s central valley along a designated path. Southern Pacific invited settlers to begin developing the land adjacent to this path, suggesting that the price would be “$2.50 per acre and up,” promising that any improvements to the land would not be factored into the final price, but also stipulating that the final price would be set and payment would occur after the tracks were laid. Years later, with settlers’ investments in the land well in place, investments that were largely immovable and thus highly specific to the adjacent railroad tracks, the Southern Pacific set the price of the land at $35 per acre. Settlers were outraged. The result was a bitter dispute between settlers and the railroad that erupted in Tulare County, California, into a gunfight and massacre of both railroad men and settlers. Such is a classic holdup—a problem that arises frequently in business exchanges.

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