How Wide is the Firm Border?

61 Pages Posted: 23 Oct 2019

See all articles by Ali Hortacsu

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: 2019-10-01

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

Hortacsu, Ali and Li, Mary Jialin and Syverson, Chad, How Wide is the Firm Border? (2019-10-01). 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

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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