Vertical integration: Determinants and effects

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

The theory of vertical integration is situated at the intersection of the theory of the firm, the theory of contracts, and the theory of markets. A firm can be described as vertically integrated if it encompasses two single-output production processes in which either (1) the entire output of the upstream process is employed as part or all of the quantity of one intermediate input into the downstream process or (2) the entire quantity of one intermediate input into the downstream process is obtained from part or all of the output of the upstream process. This includes the more restrictive criterion that the entire output of the upstream subsidiary be employed as all of the quantity of one intermediate input into the downstream process. There are three broad determinants of vertical integration: technological economies, transactional economies, and market imperfections. Vertical integration may arise from technological economies of integration. In particular, less of the other intermediate inputs may be required to obtain the same output in the downstream process when the firm has integrated one of the upstream processes.
Original languageEnglish (US)
Title of host publicationHandbook of Industrial Organization
EditorsRichard Schmalensee, Robert Willig
PublisherElsevier B.V.
Chapter4
Pages183-255
Number of pages73
Volume1
ISBN (Print)978-0-444-70434-4
DOIs
StatePublished - Dec 1 1989
Externally publishedYes

ASJC Scopus subject areas

  • Industrial relations
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint Dive into the research topics of 'Vertical integration: Determinants and effects'. Together they form a unique fingerprint.

Cite this