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Vertical Integration and Operational Flexibility

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  • M. Moretto
  • G. Rossini

Abstract

The main aim of the paper is to highlight the relation between flexibility and vertical integration. To this purpose, we go through the selection of the optimal degree of vertical disintegration of a flexible firm which operates in a dynamic uncertain environment. The enterprise we model enjoys flexibility since it can switch from a certain amount of disintegration to vertical integration and viceversa. This means that the firm never loses vertical control, i.e., the ability to produce all inputs even when it buys them in the market. This sort of flexibility makes for results which are somehow contrary to the Industrial Organization recent literature and closer to the Operations Research results. In this sense we provide a bridge between the two approaches and rescue Industrial Organization from counterintuitive conclusions.

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Bibliographic Info

Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 631.

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Date of creation: Mar 2008
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Handle: RePEc:bol:bodewp:631

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Cited by:
  1. Gianpaolo Rossini & Cecilia Vergari, 2009. "Input Production Joint Venture," Working Papers 2009.89, Fondazione Eni Enrico Mattei.
  2. Michele Moretto & Luca Di Corato, 2009. "Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix," Working Papers 2009.84, Fondazione Eni Enrico Mattei.

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