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A Conceptual Framework for Analyzing Economies of Vertical Integration

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  • Samuel H. Logan

Abstract

The objective of this paper is to develop a framework for quantitatively analyzing economic aspects of vertical integration by a firm. The model is based on a firm that possesses a multidimensional or lexicographic utility function in which some optimizing criteria are established for several variables. The two particular firm goals considered in this case are maximization of return on investment and reduction of short-run risk. The effects of integration are considered first in terms of changes in costs under conditions of certainty and then in terms of changes in costs and/or uncertainty under imperfect market coordination. The latter situation occurs when the market mechanism is inadequate with respect to communicating the necessary or correct requirements of price and product specification.

Suggested Citation

  • Samuel H. Logan, 1969. "A Conceptual Framework for Analyzing Economies of Vertical Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 51(4), pages 834-848.
    • Handle: RePEc:oup:ajagec:v:51:y:1969:i:4:p:834-848.
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    File URL: http://hdl.handle.net/10.2307/1237777
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    Cited by:

    1. French, Ben C., 1977. "PART II. The Analysis of Productive Efficiency in Agricultural Marketing: Models, Methods, and Progress," AAEA Monographs, Agricultural and Applied Economics Association, number 337214, january.
    2. Kilmer, Richard L. & Armbruster, Walter J., 1984. "Methods For Evaluating Economic Efficiency In Agricultural Marketing," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 16(1), pages 1-9, July.
    3. Barry, Peter J. & Stanton, Bernard F., 2003. "Major Ideas In The History Of Agricultural Finance And Farm Management," Working Papers 14750, Cornell University, Department of Applied Economics and Management.
    4. Helmberger, Peter G. & Campbell, Gerald R. & Dobson, William D., 1981. "PART IV. Organization and Performance of Agricultural Markets," AAEA Monographs, Agricultural and Applied Economics Association, number 337229, january.
    5. Claude Broussolle, 1970. "Les ensembles agro-industriels," Post-Print hal-02859694, HAL.
    6. Martinez, Steve & Zering, Kelly, 1997. "Vertical Coordination and Consumer Welfare: The Case of the Pork Industry," Agricultural Economic Reports 262048, United States Department of Agriculture, Economic Research Service.
    7. Abel P. Jeuland & Steven M. Shugan, 2008. "Managing Channel Profits," Marketing Science, INFORMS, vol. 27(1), pages 52-69, 01-02.
    8. Barry Alan Pasternack, 2008. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 27(1), pages 133-140, 01-02.

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