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Strategic bargaining and vertical separation

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  • Bruce R. Lyons
  • Khalid Sekkat

Abstract

Current theories of the vertical limits to firm size emphasize the consequences of opportunistic behavior by managers. The authors introduce opportunistic wage setting by labor unions and trace the implications for profit and investment in specific assets. Although subcontracting to an independent supplier leaves the entrepreneur with a reduced share of the surplus, he is able to pass on the responsibility for making certain investments. Two significant results are that either subcontracting or vertical integration may be privately preferred yet socially inefficient; and there is no straightforward relationship between organizational choice and specific capital intensity. Copyright 1991 by Blackwell Publishing Ltd.
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Suggested Citation

  • Bruce R. Lyons & Khalid Sekkat, 1991. "Strategic bargaining and vertical separation," ULB Institutional Repository 2013/7322, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/7322
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    Cited by:

    1. Maria Bas & Juan Carluccio, 2009. "Wage Bargaining and the Boundaries of the Multinational Firm," CEP Discussion Papers dp0963, Centre for Economic Performance, LSE.
    2. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2009. "Can deunionization lead to international outsourcing?," Journal of International Economics, Elsevier, vol. 77(1), pages 109-119, February.
    3. Carluccio, Juan & Bas, Maria, 2015. "The impact of worker bargaining power on the organization of global firms," Journal of International Economics, Elsevier, vol. 96(1), pages 162-181.
    4. D. Lee Heavner, 2004. "Vertical Enclosure: Vertical Integration and the Reluctance to Purchase from a Competitor," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 179-199, June.
    5. Gonzalez, Manuel & Arrunada, Benito & Fernandez, Alberto, 1998. "Regulation as a cause of firm fragmentation:the case of the Spanish construction industry," International Review of Law and Economics, Elsevier, vol. 18(4), pages 433-450, December.

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