A theory of trust failure and vertical integration in industrial districts
AbstractWe model the interaction of independent firms within an industrial district as a repeated game of trust, where cooperative outcomes are not due to the cultural attitudes of the players, but the result of non-cooperative behaviour taking place in a stable organizational setting. When the outside option of changing partners is not too attractive, cooperation may arise also without ties between firms; when such attractiveness increases, cooperation may only be guaranteed by making the relationship more stable through a formal commitment, which may lead to a fullyfledged vertical integration. As the efficiency gains of changing partners becomes even larger, stable relationships are no longer optimal and the traditional model of industrial districts breaks down.
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Bibliographic InfoPaper provided by Università Cattolica del Sacro Cuore, Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo (DISEIS) in its series DISEIS - Quaderni del Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo with number dis1001.
Date of creation: 2010
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More information through EDIRC
trust relationships; industrial districts; vertical integration;
Find related papers by JEL classification:
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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