Document Type
Discussion Paper
Publication Date
7-1-1999
CFDP Number
1232
CFDP Pages
38
Abstract
The organization of supply relations varies across industries. This paper builds a theoretical framework to compare three alternative supply structures: vertical integration, networks, and markets. The analysis considers the relationship between uncertainty in demand for specific inputs, investment costs, and industrial structure. It shows that network structures are more likely when productive assets are expensive and firms experience large idiosyncratic shocks in demand. The analysis is supported by existing evidence and provides empirical predictions as to the shape of different industries.
Recommended Citation
Kranton, Rachel E. and Minehart, Deborah F., "Vertical Integration, Networks, and Markets" (1999). Cowles Foundation Discussion Papers. 1481.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1481