Improving a company's bargaining position is often cited as a chief motivation to vertically integrate with suppliers. This paper expands on that view in building a new theory of vertical integration. In my model firms integrate to gain bargaining power against other suppliers in the production process. The cost of integration is a loss of flexibility in choosing the most suitable suppliers for a particular final product. I show that the firms who make the most specific investments in the production process have the greatest incentive to integrate. The theory provides novel insights into the understanding of numerous stylized facts such as the effect of financial development on the vertical structure of firms, the observed pattern from FDI to outsourcing in international trade, and the effect of technological obsolescence on organizations.

Ursino, G., Supply Chain Control: A Theory of Vertical Integration, <<THE B.E. JOURNAL OF ECONOMIC ANALYSIS & POLICY>>, 2015; 15 (4): 1831-1866. [doi:10.1515/bejeap-2014-0099] [http://hdl.handle.net/10807/68182]

Supply Chain Control: A Theory of Vertical Integration

Ursino, Giovanni
2015

Abstract

Improving a company's bargaining position is often cited as a chief motivation to vertically integrate with suppliers. This paper expands on that view in building a new theory of vertical integration. In my model firms integrate to gain bargaining power against other suppliers in the production process. The cost of integration is a loss of flexibility in choosing the most suitable suppliers for a particular final product. I show that the firms who make the most specific investments in the production process have the greatest incentive to integrate. The theory provides novel insights into the understanding of numerous stylized facts such as the effect of financial development on the vertical structure of firms, the observed pattern from FDI to outsourcing in international trade, and the effect of technological obsolescence on organizations.
2015
Inglese
Ursino, G., Supply Chain Control: A Theory of Vertical Integration, <<THE B.E. JOURNAL OF ECONOMIC ANALYSIS & POLICY>>, 2015; 15 (4): 1831-1866. [doi:10.1515/bejeap-2014-0099] [http://hdl.handle.net/10807/68182]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/68182
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