Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain
Rocco Macchiavello and
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Rocco Macchiavello: London School of Economics
Miquel-Florensa, Josepa: Toulouse School of Economics
CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)
This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by significant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which firms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources.
Keywords: Vertical Integration; Relational Contracts; Adaptation; Demand Uncertainty; Supply Chain. JEL Classification: D23; L14; L22; O12; Q13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-cta and nep-ind
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