A Formal Theory of Firm Boundaries: A Trade-Off between Rent Seeking and Bargaining Costs
We develop a theory of firm boundaries in the spirit of transaction cost analysis, in which trading parties engage in ex post value split. We show that ex post inefficient bargaining under non-integration creates a trade-off between rent seeking and bargaining costs: while non-integration incurs lower rent-seeking costs than integration, it suffers from bargaining delay and breakdown, which never occur under integration. This result explains why rent-seeking activities within firms are likely to be more costly than those between firms, and offers a formal justification for the "costs of bureaucracy" in Williamson (1985).
|Date of creation:||Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: 2-1 Rokkodai, Nada, Kobe 657-8501 JAPAN|
Phone: +81-(0)78 803 7036
Fax: +81-(0)78 803 7059
Web page: http://www.rieb.kobe-u.ac.jp/index-e.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alp E. Atakan & Mehmet Ekmekci, 2014.
"Bargaining and Reputation in Search Markets,"
Review of Economic Studies,
Oxford University Press, vol. 81(1), pages 1-29.
- Kambe, Shinsuke, 1999. "Bargaining with Imperfect Commitment," Games and Economic Behavior, Elsevier, vol. 28(2), pages 217-237, August.
- Hart, Oliver D. & Moore, John, 1990.
"Property Rights and the Nature of the Firm,"
3448675, Harvard University Department of Economics.
- Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 1-48.
- Eric Van den Steen, 2010. "Interpersonal Authority in a Theory of the Firm," American Economic Review, American Economic Association, vol. 100(1), pages 466-90, March.
- Francine Lafontaine & Margaret Slade, 2007.
"Vertical Integration and Firm Boundaries: The Evidence,"
Journal of Economic Literature,
American Economic Association, vol. 45(3), pages 629-685, September.
- Lafontaine, Francine & Slade, Margaret, 2007. "Vertical Integration and Firm Boundaries : The Evidence," The Warwick Economics Research Paper Series (TWERPS) 799, University of Warwick, Department of Economics.
- Jihong Lee & Qingmin Liu, 2013. "Gambling Reputation: Repeated Bargaining With Outside Options," Econometrica, Econometric Society, vol. 81(4), pages 1601-1672, 07.
- Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, June.
- Kirk Monteverde & David J. Teece, 1982. "Supplier Switching Costs and Vertical Integration in the Automobile Industry," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 206-213, Spring.
- Michael Powell, 2015. "An Influence-Cost Model of Organizational Practices and Firm Boundaries," Journal of Law, Economics and Organization, Oxford University Press, vol. 31(suppl_1), pages i104-i142.
- Oliver Hart, 2009. "Hold-up, Asset Ownership, and Reference Points," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 267-300.
When requesting a correction, please mention this item's handle: RePEc:kob:dpaper:dp2013-20. 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: (Office of Promoting Research Collaboration, Research Institute for Economics & Business Administration, Kobe University)
If references are entirely missing, you can add them using this form.