Quality, Vertical Integration and Adaptability

Nicolás Depetris-Chauvin, Marta Fernández Olmos, Juan Hallak and José Santiago Mosquera
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Nicolás Depetris-Chauvin: HES-SO, HEG Genève
Marta Fernández Olmos: Universidad de Zaragoza
José Santiago Mosquera: Universidad de San Andrés
Authors registered in the RePEc Author Service: Nicolas Depetris Chauvin

No 221, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: As global competition increasingly focuses on product quality, firms need to ensure the quality of their inputs. A central question is then which organizational structure best enables them to achieve this objective. Numerous papers have found that firms that produce higher quality are more likely to integrate with their suppliers. However, their focus so far has been placed on quality unobservability as the driver of integration. In this paper, we confirm the empirical relationship between quality and vertical integration but uncover an alternative mechanism in a set up where quality unobservability is not relevant: a stronger need for high quality producers to adapt efficiently to uncertain events. Based on a survey of 688 Spanish wineries and using the probability of hail as a proxy measure of uncertainty and need for adaptation, we find that the relationship between product quality and vertical integration is stronger for wineries in locations subject to more climatic uncertainty. In those cases, vertical integration comes out as an organizational form that provides high quality producers with more adaptability to preserve input quality in response to unforseen events

Keywords: Vertical Integration; Quality; Adaptation (search for similar items in EconPapers)
JEL-codes: L14 L15 L22 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2023-03
New Economics Papers: this item is included in nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:221

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