Vertical Integration: Networks, and Markets
The organization of supply relations varies across industries. This paper builds a theoretical framework to compare three alternative supply structures: vertical integration, networks, and markets. The analysis considers the relationship between uncertainty in demand for specific inputs, investment costs, and industrial structure. It shows that network structures are more likely when productive assets are expensive and firms experience large idiosyncratic shocks in demand. The analysis is supported by existing evidence and provides empirical predictions as to the shape of different industries.
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3448675, Harvard University Department of Economics.
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- Cawthorne, Pamela M., 1995. "Of networks and markets: The rise and rise of a South Indian town, the example of Tiruppur's cotton knitwear industry," World Development, Elsevier, vol. 23(1), pages 43-56, January.
- Aksoy, Asu & Robins, Kevin, 1992. "Hollywood for the 21st Century: Global Competition for Critical Mass in Image Markets," Cambridge Journal of Economics, Oxford University Press, vol. 16(1), pages 1-22, March.
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