Vertical Firm Boundaries: Supplier-Customer Contracts and Vertical Integration

Vertical Integration and Firm Boundaries: The Evidence

Vertical Integration and Supplier Finance

We investigate the financial implications of a multinational firm’s choice between outsourcing and integration from the perspective of the supplier. Using a simple model, we explore the extent to which an integrated supplier’s access to finance, as well as its sources of funding, change relative to a firm supplying a multinational at arm’s-length. The model predicts that integrated firms have b...

Vertical integration and exclusivity contracts when consumers have switching costs

This paper extends the literature on switching costs by considering what happens when retailers and manufacturers are separate entities and some customers are locked in with retailers. This separation introduces a dynamic inconsistency problem as manufacturers face the problem of extracting too much surplus from the retailer in which case the retailer has no incentive to build a subscriber base...

Option Contracts and Vertical Foreclosure

A model of vertical integration is studied. Upstream firms sell differentiated inputs; downstream firms bundle them to make final products. Downstream products are sold as option contracts, which allow consumers to choose from a set of commodities at predetermined prices. The model is illustrated by examples in telecommunication and health markets. Equilibria of the integration game must result...

An Empirical Examination of Transaction- and Firm-level Influences on the Vertical Boundaries of the Firm

A large literature has successfully employed transaction cost economic theory to describe how exchange conditions affect the optimal form of organization. However, this approach has historically not accounted for the influence of firm-specific attributes on the governance decision. This paper develops a model based on insights from transaction cost economics, the resourcebased view, and real op...