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Supply Chain Control: A Theory of Vertical Integration

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Author Info

  • Giovanni Ursino

    ()
    (DISCE, Università Cattolica)

Abstract

Improving a company's bargaining position is often cited as a chief motivation to vertically integrate with suppliers. This paper expands on that view in building a new theory of vertical integration. In my model firms integrate to gain bargaining power against other suppliers in the production process. The cost of integration is a loss of flexibility in choosing the most suitable suppliers for a particular final product. I show that the firms who make the most specific investments in the production process have the greatest incentive to integrate. The theory provides novel insights to the understanding of numerous stylized facts such as the effect of financial development on the vertical structure of firms, the observed pattern from FDI to outsourcing in international trade, the effect of technological obsolescence on organizations, etc.

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File URL: http://www.unicatt.it/Istituti/EconomiaImpresaLavoro/Quaderni/ieil0053.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia dell'Impresa e del Lavoro with number ieil0053.

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Length: 32 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:ctc:serie4:ieil0053

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Web page: http://www.unicatt.it/Istituti/EconomiaImpresaLavoro
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Related research

Keywords: vertical integration; supply chain; bargaining; outside options;

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Cited by:
  1. Professor Dr. Joachim Zentes, 2011. "„Sustainability – Supply Security – Distributive Justice: A Global Area Of Conflict“," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 2(39), pages 201-218, May.

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