An Institutional Analysis of Vertical Coordination verses Vertical Integration: The Case of the US Broiler Industry

Abstract

This paper analyzes the situation, structure and performance of broiler production. The inherent interdependence in broiler production is high transactions costs. Two types of transactions costs, asset specificity with uncertainty and high information costs, are identified and explored. The performances of the alternative structures, vertical integration and vertical coordination, are outlined. In broiler production, vertical coordination is preferred by both firms and growers because it minimizes transactions costs. These conclusions are extended to other agricultural commodities, using pork and rice as examples. 13 pages.