Vertical Integration and Sunk Capital in Transition Economies
Agency problems in inter-firm trading relationships are severe in developing and transitional economies because of the limited decentralized information that can support contract enforcement and because the timing of intermediate goods production and payment differ. The consequences are derived for the equilibrium distribution of firm structures, production, prices, profits and trade in developing and transitional economies. Within a multi-market setting, equilibrium outcomes are characterized both for firms that are directly affected by contracting problems and for those that are not. The equilibrium features both excessive vertical integration and excessive development of small-scale retail enterprises, and insufficient, inefficient inter-firm trade. Average profits of vertically integrated firms are higher and those of small-scale retail enterprises and intermediate suppliers are lower than they would be were enduring trading relationships more easily established.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 37 (2009)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CODS20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CODS20|
When requesting a correction, please mention this item's handle: RePEc:taf:oxdevs:v:37:y:2009:i:1:p:19-32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.