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Explaining Intraindustry Differences in the Extent of Vertical Integration

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  • Walter Elberfeld

Abstract

The central purpose of this paper is to examine firms' vertical integration decisions as a consequence of strategic choices within an explicit market environment. I show that a unique equilibrium number of unintegrated downstream firms exists when the intermediate-good market is imperfectly competitive and nonintegration leads to savings in fixed costs. The outcome may be one in which some firms produce the intermediate good internally while others do not, despite the fact that all firms have identical ex ante opportunity sets. Thus, my results provide an explanation for intraindustry differences in the vertical organization of firms.

Suggested Citation

  • Walter Elberfeld, 2001. "Explaining Intraindustry Differences in the Extent of Vertical Integration," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(3), pages 465-477, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200109)157:3_465:eidite_2.0.tx_2-v
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    References listed on IDEAS

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    8. Abiru, Masahiro & Nahata, Babu & Raychaudhuri, Subhashis & Waterson, Michael, 1998. "Equilibrium structures in vertical oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 463-480, December.
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    Cited by:

    1. Elberfeld Walter & Götz Georg, 2002. "Market Size, Technology Choice, and Market Structure," German Economic Review, De Gruyter, vol. 3(1), pages 25-41, February.
    2. Fabio Pieri, 2018. "Vertical organization of production and firm growth," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(1), pages 83-106.
    3. Fabio Pieri & Enrico Zaninotto, 2013. "Vertical integration and efficiency: an application to the Italian machine tool industry," Small Business Economics, Springer, vol. 40(2), pages 397-416, February.
    4. Lin, Ping, 2006. "Strategic spin-offs of input divisions," European Economic Review, Elsevier, vol. 50(4), pages 977-993, May.
    5. Fabio Pieri, 2015. "Vertical organization of production and firm growth behavior," Working Papers 1508, Department of Applied Economics II, Universidad de Valencia.
    6. Oz Shy & Rune Stenbacka, 2005. "Partial outsourcing, monitoring cost, and market structure," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1173-1190, November.
    7. Alessandro Manello & Giuseppe G. Calabrese & Piercarlo Frigero, 2016. "Technical efficiency and productivity growth along the automotive value chain: evidence from Italy," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(2), pages 245-259.
    8. Buehler, Stefan & Schmutzler, Armin, 2008. "Intimidating competitors -- Endogenous vertical integration and downstream investment in successive oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 247-265, January.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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