On synergies and vertical integration
نویسندگان
چکیده
We analyze in an incomplete contracts model whether a supplier should be integrated if in addition to his investment level he chooses the degree of relationship specificity. A basic trade-off arises: While non-integration leads to higher investment incentives, potential synergies are foregone. Hence, integration can be optimal even though only the supplier makes an investment decision. This may also clarify the discussion on which activities belong to a firm’s core competencies. Furthermore, we show that if specificity is contractible, less than the efficient degree of specificity will deliberately be chosen since investment incentives are thereby improved. 2001 Elsevier Science B.V. All rights reserved. JEL classification: L22; L14; D23
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