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Integration vs. Outsourcing in Industry Equilibrium

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Author Info
Grossman, G.M.
Helpman, E.

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Abstract

We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a unique, specialized component. Vertically integrated firms can manufacture the components they need in the quantity and type that maximizes profits, but they face a relatively high cost of governance.

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Publisher Info
Paper provided by Tel Aviv in its series Papers with number 2001-7.

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Length: 48 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:fth:teavfo:2001-7

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Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Phone: 972-3-640-9255
Fax: 972-3-640-5815
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Web page: http://econ.tau.ac.il/research/foerder.asp
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Related research
Keywords: ECONOMIC MODELS ; INDUSTRIAL STRUCTURE ; COMPETITION;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 57-82, January. [Downloadable!] (restricted)
  2. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 4(3), pages 399-426, Fall.
    Other versions:
  3. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  4. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99. [Downloadable!]
  5. Hart, Oliver & Moore, John, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 115-38, January. [Downloadable!] (restricted)
    Other versions:
  6. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  7. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October. [Downloadable!] (restricted)
  8. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  9. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 83-114, January. [Downloadable!] (restricted)
  10. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December. [Downloadable!] (restricted)
  11. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December. [Downloadable!] (restricted)
  12. Yeats, Alexander J., 1998. "Just how big is global production sharing?," Policy Research Working Paper Series 1871, The World Bank. [Downloadable!]
  13. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March. [Downloadable!] (restricted)
  14. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November. [Downloadable!] (restricted)
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  15. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 217-27, April. [Downloadable!] (restricted)
  16. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July. [Downloadable!] (restricted)
    Other versions:
  17. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
    Other versions:
  19. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier. [Downloadable!] (restricted)
  20. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989-1), pages 1-76. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Martimort, David & Verdier, Thierry, 2009. "International Trade with Domestic Regulation under Asymmetric Information: A Simple General Equilibrium Approach," IDEI Working Papers 223, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Marin, Dalia & Verdier, Thierry, 2003. "Globalization and the Empowerment of Talent," CEPR Discussion Papers 4129, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Dalia Marin, 2004. "‘A Nation of Poets and Thinkers’ - Less So with Eastern Enlargement? Austria and Germany," Discussion Papers 77, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  4. Naghavi, Alireza & Ottaviano, Gianmarco Ireo Paolo, 2006. "Outsourcing, Contracts and Innovation Networks," CEPR Discussion Papers 5681, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Eric W. Bond, 2001. "Commercial Policy in a "Fragmented" World," American Economic Review, American Economic Association, vol. 91(2), pages 358-362, May. [Downloadable!] (restricted)
  6. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market," Discussion Papers in Economics 10, University of Munich, Department of Economics. [Downloadable!]
  7. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Zhihao Yu, 2003. "A New Push on An Old Fundamental: Understanding the Patterns of Outsourcing," Carleton Economic Papers 03-08, Carleton University, Department of Economics. [Downloadable!]
  9. Dalia Marin & Thierry Verdier, 2001. "Power Inside the Firm and the Market: A General Equilibrium Approach," Discussion Papers 109, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised Apr 2006. [Downloadable!]
    Other versions:
  10. Pol Antràs, 2003. "Incomplete Contracts and the Product Cycle," NBER Working Papers 9945, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Duranton, Gilles & Puga, Diego, 2001. "From Sectoral to Functional Urban Specialization," CEPR Discussion Papers 2971, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  12. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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