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Vertical Integration and Market Structure

53 Pages Posted: 2 Mar 2012  

Timothy Bresnahan

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jonathan Levin

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: March 2012

Abstract

Contractual theories of vertical integration derive firm boundaries as an efficient response to market transaction costs. These theories predict a relationship between underlying features of transactions and observed integration decisions. There has been some progress in testing these predictions, but less progress in quantifying their importance. One difficulty is that empirical applications often must consider firm structure together with industry structure. Research in industrial organization frequently has adopted this perspective, emphasizing how scale and scope economies, and strategic considerations, influence patterns of industry integration. But this research has paid less attention to contractual or organizational details, so that these two major lines of research on vertical integration have proceeded in parallel with only rare intersection. We discuss the value of combining different viewpoints from organizational economics and industrial organization.

Suggested Citation

Bresnahan, Timothy and Levin, Jonathan, Vertical Integration and Market Structure (March 2012). NBER Working Paper No. w17889. Available at SSRN: https://ssrn.com/abstract=2014583

Timothy F. Bresnahan (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-5702 (Fax)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Jonathan D. Levin

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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