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Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters

Listed author(s):
  • Christopher Hansman
  • Jonas Hjort
  • Gianmarco León
  • Matthieu Teachout
Registered author(s):

    We study the relationship between exporters’ organizational structure and output quality. If only input quantity is observable, theory predicts that vertical integration may be necessary to incentivize suppliers to increase input quality. Using data on suppliers’ behavior, supplier ownership, supply transactions, and manufacturers’ output by quality grade and exports from the Peruvian fishmeal industry, we show the fol- lowing. After integrating with the plant being supplied and losing access to alternative pay-per-kilo buyers, suppliers take more quality-increasing and less quantity-increasing actions. Integration consequently causally increases output quality, and manufacturers integrate suppliers when facing high relative demand for high quality grades.

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    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 961.

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    Date of creation: Mar 2017
    Handle: RePEc:bge:wpaper:961
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