Economising, Strategising and the Vertical Boundaries of the firm

Dermot Leahy and Catia Montagna

The B.E. Journal of Theoretical Economics, 2017, vol. 17, issue 1, 35

Abstract: We bridge the organisational economics and industrial economics literatures on the vertical boundaries of the firm by contextualising the transaction cost approach to the make-or-buy decision within an oligopolistic market structure. Firms invest in the quality of the intermediate resulting in the endogenous determination of the price of the intermediate and marginal production cost of the final good. We highlight new strategic incentives to outsource and/or vertically integrate and show how these incentives can result in asymmetric-mode-of-operations, investment and costs. We apply our model to a number of different international trading setups.

Keywords: oligopoly; outsourcing; vertical integration; trade liberalisation (search for similar items in EconPapers)
JEL-codes: F12 L13 L14 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/bejte-2015-0085

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