Textbook Notes (367,752)
Canada (161,368)
BUS 478 (20)
Chapter 14

Chapter 14 Vertical Integration and the Scope of the Firm

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Business Administration
BUS 478
Pek- Hooi Soh

Chapter 14 Vertical Integration and the Scope of the Firm 349365Transaction Costs and the Scope of the FirmFirms Markets and Transaction Costs y Two forms of economic organization o Market mechanismindividuals make independent decisions based on market prices o Administrative mechanismfirms make structured decisions y What determines which activities are undertaken by a firm and which by the market o Relativetransactionadmin costsif you choose the market it involves costs of negotiating and drawing up contracts monitoring and enforcement o Above costs are all avoided if the firm internalizes the processShifting Boundary between Firms and Markets y Two factors increasing efficiency of firms o Technology o Management techniques eg double entry bookkeeping scientific management y Trend towards downsizing because o Market increasing in efficiency especially when business environment is turbulentfirms want to stay flexible o Technology is now widely available even to smaller firmsThe Costs and Benefits of Vertical IntegrationDefining Vertical Integration y Firms ownership of vertically related activities successive stages of the value chain y The more a firm makes ra
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