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Technical efficiency and the vertical boundaries of the firm: theory and evidence

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  • Fabio Pieri
  • Enrico Zaninotto

Abstract

This article provides a theoretical and empirical analysis of the relationship between firms' technical efficiency and the vertical organization of production. Technical inefficiency is explicitly introduced as the source of firms' heterogeneity in a Bertrand--Nash model of industry competition: the main prediction of the model is that the most efficient firms choose vertical integrated structures and the less-efficient ones choose disintegrated structures. The empirical part of the article rests on a stochastic frontier analysis (SFA) in a sample of about 400 Italian machine tool (MT) builders, and the result supports the prediction of the theoretical model.

Suggested Citation

  • Fabio Pieri & Enrico Zaninotto, 2013. "Technical efficiency and the vertical boundaries of the firm: theory and evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 20(17), pages 1538-1543, November.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:17:p:1538-1543
    DOI: 10.1080/13504851.2013.829177
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    Cited by:

    1. Fabio Pieri, 2015. "Vertical organization of production and firm growth behavior," Working Papers 1508, Department of Applied Economics II, Universidad de Valencia.
    2. Fabio Pieri, 2018. "Vertical organization of production and firm growth," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(1), pages 83-106.
    3. Le, Manh-Duc & Pieri, Fabio & Zaninotto, Enrico, 2019. "From central planning towards a market economy: The role of ownership and competition in Vietnamese firms’ productivity," Journal of Comparative Economics, Elsevier, vol. 47(3), pages 693-716.

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