Imperfect competition, imperfect information, disequilibrium, and rationing all induce vertical integration in relatively straightforward ways. But can vertical integration arise when firms are competitive and markets clear rapidly? This paper demonstrates that a vertical equilibrium can be generated when the intermediate market is subject to external fluctuations and when there are economies of coordination for firms which avoid the market via integration. The vertical equilibrium is one in which some firms will be integrated while some will not, despite the fact that all firms are identical. Thus, one need not conclude that differential degrees of integration within industries are the result of differing circumstances among firms.
ASJC Scopus subject areas
- Industrial relations
- Aerospace Engineering
- Strategy and Management
- Industrial and Manufacturing Engineering