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- Title
INTEGRATION VERSUS OUTSOURCING IN INDUSTRY EQUILIBRIUM.
- Authors
Grossman, Gene M.; Helpman, Elhanan
- Abstract
We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a specialized component. Vertically integrated firms can manufacture the components they need, but they face a relatively high cost of governance. Specialized firms can produce at lower cost, but search for partners is costly, and input suppliers face a potential holdup problem. We study the determinants of the equilibrium mode of organization when inputs are fully or partially specialized.
- Subjects
ECONOMIC equilibrium; VERTICAL integration; CONSUMER goods; BUSINESS enterprises; INDUSTRIAL management
- Publication
Quarterly Journal of Economics, 2002, Vol 117, Issue 1, p85
- ISSN
0033-5533
- Publication type
Article
- DOI
10.1162/003355302753399454