Networks versus vertical integration

Journal Article (Journal Article)

We construct a theory to compare vertically integrated firms to networks of manufacturers and suppliers. Vertically integrated firms make their own specialized inputs. In networks, manufacturers procure specialized inputs from suppliers that, in turn, sell to several manufacturers. The analysis shows that networks can yield greater social welfare when manufacturers experience large idiosyncratic demand shocks. Individual firms may also have the incentive to form networks, despite the lack of long-term contracts. The analysis is supported by existing evidence and provides predictions as to the shape of different industries.

Full Text

Duke Authors

Cited Authors

  • Kranton, RE; Minehart, DF

Published Date

  • January 1, 2000

Published In

Volume / Issue

  • 31 / 3

Start / End Page

  • 570 - 601

International Standard Serial Number (ISSN)

  • 0741-6261

Digital Object Identifier (DOI)

  • 10.2307/2601001

Citation Source

  • Scopus