Non-Contractible Investments and Vertical Integration in the Mexican Footwear Industry

UCSD, Graduate School of International Relations and Pacific Studies

49 Pages Posted: 4 Sep 2001

See all articles by Christopher M. Woodruff

Christopher M. Woodruff

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Date Written: August 2001

Abstract

This paper examines patterns of integration among manufacturers and retails, using data from a survey of footwear manufacturers in Mexico. The property rights framework, developed in papers by Grossman, Hart and Moore, is differentiated from the standard empirical transactions cost framework. In the context of this industry, the most relevant distinction between the two frameworks is that the property rights framework addresses both the benefits and costs of integration, while the transactions cost framework focuses only on variation in the benefits of integration. We show that the costs of integration are highest where the retailer's non-contractible investment has an important effect on the overall profits from the relationship. Consistent with the property rights framework, the data suggest that integration is less likely in these circumstances.

Keywords: Theory of the firm, Property rights, Grossman/Hart/Moore model, Transactions costs

JEL Classification: L2, L6

Suggested Citation

Woodruff, Christopher, Non-Contractible Investments and Vertical Integration in the Mexican Footwear Industry (August 2001). UCSD, Graduate School of International Relations and Pacific Studies, Available at SSRN: https://ssrn.com/abstract=282057 or http://dx.doi.org/10.2139/ssrn.282057

Christopher Woodruff (Contact Author)

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

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