Template-Type: ReDIF-Paper 1.0


Author-Name: Giovanni Ursino
Author-X-Name-First: Giovanni 
Author-X-Name-Last: Ursino
Author-Email: giovanni.ursino@unicatt.it
Author-Workplace-Name: Università Cattolica del Sacro Cuore
Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore



Title: Supply Chain Control: a Theory of Vertical Integration
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 
exibility in choosing the most suitable suppliers
for a particular final product. I show that the rms who make the most specific
investments in the production process have the greatest incentive to integrate.
The theory provides novel insights to 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,
the effect of technological obsolescence on organizations, etc.
Length: 43
Creation-Date: 2015-06
File-URL: http://dipartimenti.unicatt.it/economia-finanza-def027.pdf
File-Format: Application/pdf
File-Function: First version, 2015
Number: def027
Classification-JEL: L1, L2. 
Keywords: vertical integration, supply chain, bargaining, outside options
Handle: RePEc:ctc:serie1:def027