How Wide is the Firm Border?

61 Pages Posted: 23 Oct 2019

See all articles by Enghin Atalay

Enghin Atalay

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ali Hortacsu

University of Chicago

Mary Jialin Li

Compass Lexecon

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: October, 2019

Abstract

We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and goods-distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries; that is, which transactions are mediated by ownership control, as opposed to contracts or markets. We find firm boundaries to be an economically significant barrier to trade: Having an additional vertically integrated establishment in a given destination ZIP code has the same effect on shipment volumes as a 40 percent reduction in distance. These effects are larger for high value-to-weight products, for faraway destinations, for differentiated products, and for IT-intensive industries.

Suggested Citation

Atalay, Enghin and Hortacsu, Ali and Li, Mary Jialin and Syverson, Chad, How Wide is the Firm Border? (October, 2019). FRB of Philadelphia Working Paper No. 19-37, Available at SSRN: https://ssrn.com/abstract=3474361 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.37

Enghin Atalay (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Ali Hortacsu

University of Chicago

Mary Jialin Li

Compass Lexecon ( email )

United States

Chad Syverson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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