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Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain

Author

Listed:
  • Macchiavello, Rocco

    (London School of Economics)

  • Miquel-Florensa, Josepa

    (Toulouse School of Economics)

Abstract

This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by significant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which firms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources.

Suggested Citation

  • Macchiavello, Rocco & Miquel-Florensa, Josepa, 2017. "Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain," CAGE Online Working Paper Series 321, Competitive Advantage in the Global Economy (CAGE).
  • Handle: RePEc:cge:wacage:321
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    More about this item

    Keywords

    Vertical Integration; Relational Contracts; Adaptation; Demand Uncertainty; Supply Chain. JEL Classification: D23; L14; L22; O12; Q13;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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