Abstract
Vertical integration theory has long suggested internal costs related to changes in incentives due to vertical integration, which means that vertical integration may lead to agency costs. In this work, we specify the notion of agency costs of vertical integration and extend Ang, Cole and Lin (2000)’s measurement of agency costs to provide an empirical assessment of these costs in the French wine industry. Our econometric analysis finds that the agency costs of vertical integration may reach 2% to 3% of sales. It also displayed an unexpected result: vertical integration implies less costs for cooperatives than for other firms, but provides a lower performance. This result deserves further investigations.
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