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Prices Versus Quantities and Vertical Financial Integration

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  • M. Therese Flaherty

Abstract

This article provides a testable theory to predict financial vertical integration for a small, but industrially important, class of vertical firm relations. The most important difference between this and earlier theories of vertical integration is that by combining two consistent theories, we predict both the types of coordination and product flow functions between two units and their financial relations. The financial integration theory is based on Williamson's theory (1975) of market failures, and the properties of transactions theory is based on Weitzman's theory (1975) of the differences between price and quantity controls in central planning.

Suggested Citation

  • M. Therese Flaherty, 1981. "Prices Versus Quantities and Vertical Financial Integration," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 507-525, Autumn.
  • Handle: RePEc:rje:bellje:v:12:y:1981:i:autumn:p:507-525
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    Cited by:

    1. Feng, Li & Hendrikse, George W.J., 2011. "Coordination and Governance: The case of Cooperatives versus IOFs," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114359, European Association of Agricultural Economists.
    2. Robert A. Taggart, Jr., 1983. "Capital Allocation in Mult-Division Firms: Hurdle Rates vs. Budgets," NBER Working Papers 1213, National Bureau of Economic Research, Inc.
    3. Robert A. Taggart Jr., 1987. "Allocating Capital Among A Firm'S Divisions: Hurdle Rates Vs. Budgets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 10(3), pages 177-190, September.

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