MGEC40H3 Lecture Notes - Vertical Integration
24 Jun 2014
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Document Summary
Organizing vertical boundaries: vertical integration and its alternatives. This chapter examines why vertical integration differs across industries, across firms within the same industry, and across different transactions within the same firm. The first part of this chapter assesses the merits of vertical integration as a function of the industry, firm, and transactions characteristics. It then presents evidence on vertical integration from studies of a number of specific industries including automobiles, aerospace, electric utilities, and electronic components industry. The next section examines whether there might be other factors apart from those discussed in chapter 5 that might drive a firm"s decision to vertically integrate. This chapter focuses on two alternative classes of explanation. One is theory offered by sanford grossman, oliver hart and john moore that stresses the role of asset management and its effect on investments in relationship specific assets as a key determinant of vertical integration. The second theory analyzes market imperfections motivations for vertical integration.
