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"Globalization" and Vertical Structure

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Author Info
John McLaren
Abstract

This paper analyzes the effects of international openness on vertical integration. Vertical integration can confer a negative externality, by thinning the market for inputs and thus worsening opportunism problems; this induces strategic complementarity and multiple equilibria in the integration decision, thus providing a theory of different "industrial systems" or "industrial cultures" in ex ante identical countries. International openness thickens the market, facilitating leaner, less integrated firms, thus providing gains from international openness quite different from those that are familiar from trade theory. This may be taken as one theory of "outsourcing," "downsizing," and "Japanization" as consequences of "globalization."

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 5 (December)
Pages: 1239-1254
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Handle: RePEc:aea:aecrev:v:90:y:2000:i:5:p:1239-1254

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  1. Baba, Yasunori & Takai, Shinji & Mizuta, Yuji, 1995. "The Japanese software industry: the 'hub structure' approach," Research Policy, Elsevier, vol. 24(3), pages 473-486, May. [Downloadable!] (restricted)
  2. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September. [Downloadable!] (restricted)
  3. Barbara J. Spencer & Ronald W. Jones, 1991. "Vertical Foreclosure and International Trade Policy," NBER Working Papers 2920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  5. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-52, October. [Downloadable!] (restricted)
  6. Pirrong, Stephen Craig, 1993. "Contracting Practices in Bulk Shipping Markets: A Transactions Cost Explanation," Journal of Law & Economics, University of Chicago Press, vol. 36(2), pages 937-76, October.
  7. Hanson, Gordon H, 1995. "Incomplete Contracts, Risk, and Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 341-63, May. [Downloadable!] (restricted)
  8. Robert C. Feenstra & Deng-Shing Huang & Gary G. Hamilton, 1997. "Business Groups and Trade in East Asia: Part 1, Networked Equilibria," NBER Working Papers 5886, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Acemoglu, Daron & Newman, Andrew, 1997. "The Labour Market and Corporate Structure," CEPR Discussion Papers 1708, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October. [Downloadable!] (restricted)
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  11. Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
  12. Taylor, Curtis R & Wiggins, Steven N, 1997. "Competition or Compensation: Supplier Incentives under the American and Japanese Subcontracting Systems," American Economic Review, American Economic Association, vol. 87(4), pages 598-618, September. [Downloadable!] (restricted)
  13. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 121-48, January. [Downloadable!] (restricted)
  14. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-85, March. [Downloadable!] (restricted)
  15. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September. [Downloadable!] (restricted)
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  16. Telser, Lester G, 1981. "Why There Are Organized Futures Markets," Journal of Law & Economics, University of Chicago Press, vol. 24(1), pages 1-22, April.
  17. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  18. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
  19. Masten, Scott E, 1984. "The Organization of Production: Evidence from the Aerospace Industry," Journal of Law & Economics, University of Chicago Press, vol. 27(2), pages 403-17, October.
  20. Keith J. Crocker & Scott E. Masten, 1988. "Mitigating Contractual Hazards: Unilateral Options and Contract Length," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 327-343, Autumn. [Downloadable!] (restricted)
  21. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May. [Downloadable!] (restricted)
  22. Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November. [Downloadable!] (restricted)
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  23. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers 1996_21, Columbia University, Department of Economics.
  24. Emons, Winand, 1996. "Good times, bad times, and vertical upstream integration," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 465-484, June. [Downloadable!] (restricted)
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  25. Thomas J. Holmes, 1995. "Localization of industry and vertical disintegration," Staff Report 190, Federal Reserve Bank of Minneapolis. [Downloadable!]
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