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Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters

Christopher Hansman, Jonas Hjort, Le�n, Gianmarco and Matthieu Teachout

No 12518, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the relationship between exporters' organizational structure and output quality. If only input quantity is observable, theory predicts that vertical integration may be necessary to incentivize suppliers to increase input quality. Using data on suppliers' behavior, supplier ownership, supply transactions, and manufacturers' output by quality grade and exports from the Peruvian fishmeal industry, we show the following. After integrating with the plant being supplied and losing access to alternative pay-per-kilo buyers, suppliers take more quality-increasing and less quantity-increasing actions. Integration consequently causally increases output quality, and manufacturers integrate suppliers when facing high relative demand for high quality grades.

JEL-codes: D2 O1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-int
Date: 2017-12
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