TY - JOUR
T1 - Integration versus outsourcing in industry equilibrium
AU - Grossman, Gene M.
AU - Helpman, Elhanan
N1 - Funding Information:
* A previous version of this paper was titled “Imperfect Contracts and Industrial Organization.” We thank Patrick Bolton, Eddie Dekel, Drew Fudenberg, Edward Glaeser, Oliver Hart, Giovanni Maggi, Ariel Rubinstein, Steven Tadelis, and Manuel Trajtenberg for helpful comments and the National Science Foundation and the US-Israel Binational Science Foundation for financial support.
PY - 2002/2
Y1 - 2002/2
N2 - We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a specialized component. Vertically integrated firms can manufacture the components they need, but they face a relatively high cost of governance. Specialized firms can produce at lower cost, but search for partners is costly, and input suppliers face a potential holdup problem. We study the determinants of the equilibrium mode of organization when inputs are fully or partially specialized.
AB - We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a specialized component. Vertically integrated firms can manufacture the components they need, but they face a relatively high cost of governance. Specialized firms can produce at lower cost, but search for partners is costly, and input suppliers face a potential holdup problem. We study the determinants of the equilibrium mode of organization when inputs are fully or partially specialized.
UR - http://www.scopus.com/inward/record.url?scp=0036487687&partnerID=8YFLogxK
U2 - 10.1162/003355302753399454
DO - 10.1162/003355302753399454
M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???
AN - SCOPUS:0036487687
SN - 0033-5533
VL - 117
SP - 85
EP - 120
JO - Quarterly Journal of Economics
JF - Quarterly Journal of Economics
IS - 1
ER -