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Economising, Strategising and the Vertical Boundaries of the firm

Author

Listed:
  • Leahy Dermot

    (Department of Economics, National University of Ireland Maynooth, Maynooth, Ireland)

  • Montagna Catia

    (Department of Economics, University of Aberdeen Business School, Edward Wright Building, Dunbar Street, Old Aberdeen, Aberdeen AB24 3QY, United Kingdom of Great Britain and Northern Ireland)

Abstract

We bridge the organisational economics and industrial economics literatures on the vertical boundaries of the firm by contextualising the transaction cost approach to the make-or-buy decision within an oligopolistic market structure. Firms invest in the quality of the intermediate resulting in the endogenous determination of the price of the intermediate and marginal production cost of the final good. We highlight new strategic incentives to outsource and/or vertically integrate and show how these incentives can result in asymmetric-mode-of-operations, investment and costs. We apply our model to a number of different international trading setups.

Suggested Citation

  • Leahy Dermot & Montagna Catia, 2017. "Economising, Strategising and the Vertical Boundaries of the firm," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(1), pages 1-35, January.
    • Handle: RePEc:bpj:bejtec:v:17:y:2017:i:1:p:35:n:7
    DOI: 10.1515/bejte-2015-0085
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    References listed on IDEAS

    as
    1. Keith Head & John Ries & Barbara J. Spencer, 2004. "Vertical Networks and US Auto Parts Exports: Is Japan Different?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 37-67, March.
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    3. Buehler, Stefan & Haucap, Justus, 2006. "Strategic outsourcing revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 325-338, November.
    4. Noriaki Matsushima, 2009. "Vertical Mergers And Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 812-834, December.
    5. Holger Görg & Aoife Hanley, 2004. "Does Outsourcing Increase Profitability?," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 267-288.
    6. repec:diw:diwwpp:dp309 is not listed on IDEAS
    7. Buehler Stefan & Schmutzler Armin, 2005. "Asymmetric Vertical Integration," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-27, January.
    8. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    9. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 729-761.
    10. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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