Contractual Form and Market Thickness in Trucking

A central proposition of the transaction costs literature is that firms will substitute more complicated contractual arrangements for simple spot arrangements when transactions involve relationship-specific investments. I investigate this proposition by testing whether simple spot arrangements are less common when local trucking markets are thin. I find that doubling the thickness of the market increases the likelihood that simple spot arrangements govern transactions by about 30% for long hauls. I find weaker evidence of relationships between local market thickness and contractual form for short hauls—hauls for which quasi-rents are particularly small. Contracts protect quasi-rents over a surprisingly large range, but they play a less important role as quasi-rents decrease.