Market structure, internal capital markets, and the boundaries of the firm

Published

Journal Article

We study how the creation of an internal capital market (ICM) can invite strategic responses in product markets that, in turn, shape firm boundaries. ICMs provide ex post resource flexibility, but come with ex ante commitment costs. Alternatively, stand-alones possess commitment ability but lack flexibility. By creating flexibility, integration can sometimes deter a rival's entry, but commitment problems can also invite predatory capital raising. These forces drive different organizational equilibria depending on the integrator's relation to the product market. Hybrid organizational forms like strategic alliances can sometimes dominate integration by offering some of its benefits with fewer strategic costs. © 2008 The American Finance Association.

Full Text

Duke Authors

Cited Authors

  • Mathews, RD; Robinson, DT

Published Date

  • December 1, 2008

Published In

Volume / Issue

  • 63 / 6

Start / End Page

  • 2703 - 2736

Electronic International Standard Serial Number (EISSN)

  • 1540-6261

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/j.1540-6261.2008.01395.x

Citation Source

  • Scopus