A dominant manufacturing firm often holds partial shares of its suppliers, and the suppliers are willing to make investments customised to the manufacturer. Furthermore, this type of manufacturer-suppliers relationship is often long-term and stable. This paper provides an explanation for this phenomenon by modelling repeated interaction between a downstream manufacturer and upstream suppliers. In the model, the manufacturer could avoid, by partially owning a supplier, hold-up problems which would arise from the supplier's customised investment. The model distinguishes between two sources of appropriable quasi-rents, and yields new empirical predictions concerning the relationship between appropriable quasi-rents and vertical integration. Copyright 2001 by Scottish Economic Society.
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Volume (Year): 48 (2001) Issue (Month): 3 (August) Pages: 345-59 Download reference. The following formats are available: HTML
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