Vertical Integration and Operational Flexibility

30 Pages Posted: 13 May 2008

See all articles by Michele Moretto

Michele Moretto

University of Padua, Dep of Economics and Management

Gianpaolo Rossini

University of Bologna - Department of Economics

Date Written: APRIL 2008

Abstract

The main aim of the paper is to highlight the relation between flexibility and vertical integration. To this purpose, we go through the selection of the optimal degree of vertical disintegration of a flexible firm which operates in a dynamic uncertain environment. The enterprise we model enjoys flexibility since it can switch from a certain amount of disintegration to vertical integration and viceversa. This means that the firm never loses vertical control, i.e., the ability to produce all inputs even when it buys them in the market. This sort of flexibility makes for results which are somehow contrary to the Industrial Organization recent literature and closer to the Operations Research results. In this sense we provide a bridge between the two approaches and rescue Industrial Organization from counterintuitive conclusions.

Keywords: Vertical Integration, Outsourcing, Entry, Flexibility

JEL Classification: L24, G 31, C61

Suggested Citation

Moretto, Michele and Rossini, Gianpaolo, Vertical Integration and Operational Flexibility (APRIL 2008). FEEM Working Paper No. 37.2008, Available at SSRN: https://ssrn.com/abstract=1130159 or http://dx.doi.org/10.2139/ssrn.1130159

Michele Moretto (Contact Author)

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

Gianpaolo Rossini

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39+051+6402607 (Phone)
+39+051+6402664 (Fax)

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