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Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain

Rocco Macchiavello () and Miquel-Florensa, Josepa

No 11874, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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: Adaptation; Demand Uncertainty; relational contracts; Supply Chain; vertical integration (search for similar items in EconPapers)
JEL-codes: D23 L14 L22 O12 Q13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-ind
Date: 2017-02
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