Extent Of Vertical Integration Research Articles

Firm Boundaries and Voluntary Disclosure

ABSTRACT We study how vertical integration shapes firms’ public disclosures. Theory suggests that firms can use public disclosure to coordinate with supply chain partners and predicts a substitution between vertical integration and public disclosure of future strategic plans, since the internalization of production reduces the need to publicly coordinate. Using data on the extent of vertical integration, we find that firms that become more vertically integrated reduce their public disclosures about their product strategies and that the reduction is most pronounced for vertically integrated firms with greater internalization of production and those with the largest informational and strategic frictions along the supply chain. JEL Classifications: D83; G14; L14; M41.

Geographical indications' prices and marketing margins: the role of group size, longevity and production decisions

PurposeGeographical indication (GI) labels aim to improving farmers' and processors' income. This article studies how characteristics related to GI groups and their reputation (e.g. the producer group size, longevity and production decisions) are related to prices at the origin, final (consumption) prices and marketing margins.Design/methodology/approach The authors use 8 years of annual data for the Italian Extra Virgin Olive Oil (EVOO) GI market encompassing 46 GI EVOOs. Estimated parameters characterizing the relationship between the GI's group features and prices (at origin and at consumption) are obtained via Three-Stage Least Squares (3SLS).FindingsResults show that the number of GI operators is related to consumption prices, while is weakly related to prices at the origin. GIs' age is not associated with higher consumption prices, while origin prices are lower for older GIs compared to younger ones. Higher farmers' olive/oil conversion rate is associated with lower origin and consumption prices, whereas the extent of vertical integration is related to higher prices at the origin and a higher share of the marketing margins going to producers.Originality/valueTo the best of their knowledge, the authors offer the first empirical evidence on how structural characteristics and production decisions of a GI group relate to prices and marketing margins.

Big data and competition analysis under Australian competition law: comeback of the structuralist approach?

Abstract Competition assessment in Australia has traditionally been based on an evaluation of the market structure relying on five factors, namely the degree of market concentration, the height of barriers to entry, the extent of product differentiation, the extent of vertical integration, and the nature of arrangements between firms. These factors, known as the ‘QCMA factors’, are characteristic of competition in the manufacturing industries of the ‘old economy’. Since the ascendancy of Chicago and Post-Chicago School thinking competition analysis in Australia has also taken into consideration non-structural factors. However, in light of the dominance of big tech companies in online markets, the so-called ‘Neo-Brandeisian School’ has advocated focusing on structural elements that are characteristic of online markets. This article examines to what extent the QCMA factors still a suitable structural framework for the assessment of competition in online markets.

Big Data and Competition Analysis Under Australian Competition Law: Comeback of the Structuralist Approach?

Competition assessment in Australia has traditionally been based on an evaluation of the market structure relying on five factors, namely the degree of market concentration, the height of barriers to entry, the extent of product differentiation, the extent of vertical integration, and the nature of arrangement between firms. These factors, known as the ‘QCMA factors’, are characteristic of competition in the manufacturing industries of the ‘old economy’. Since the ascendancy of Chicago and Post-Chicago School thinking competition analysis in Australia has also taken into consideration non-structural factors. However, in light of the dominance of big tech companies in online markets, the so-called ‘Neo-Brandeisian School’ has advocated focusing on structural elements that are characteristic of online markets. This article examines to what extent the QCMA factors still a suitable structural framework for the assessment of competition in online markets.

Hospital-Physician Integration and Hospital Ownership

Employment of physicians by hospitals – typically referred to as vertical integration – has increased significantly. Received theories fail to explain a key fact: The extent of vertical integration in not-for-profit (NFP) hospitals is substantially higher than in for-profit (FP) hospitals. We develop a model in which vertical externalities in the joint provision of complementary health care services by independent hospitals and physicians cause total prices and cost to be higher, and quantity, quality and profits to be lower, relative to a vertically integrated organization. This establishes an incentive for hospitals to integrate. We show that these externalities impact NFP hospitals more than they do FPs, so that NFPs have stronger incentives to integrate. Using data on US hospitals from 2000-2015 and with controls for other covariates including state-level “corporate-practice-of-medicine” regulations, we find support for our predictions. Our model not only explains patterns of vertical integration observed in the US hospital industry, but also has surprising implications for the effects of such integration on hospital and physician prices, and hence, for antitrust policy and empirical studies of pricing.

Measurement of health organisation performance across multiple sector services: a population health analytic perspective

Introduction: In measuring the activity and indeed the performance of health organisations it is important to consider not only the case-mix of the organisation and technical efficiency, but also what inter-dependencies may exist between organisations, or whether they are covering different services and extent of services. This study seeks to measure and provide a population health analytic approach to recognising the effects of substitution and overlap of activities of primary and secondary care. Challenges to measure true performance of organisations exist where sectors of care exist across different organisations, and where health care is divided across silos and are reviewed without consideration of interrelationships. In addition, with the increased policies worldwide to introduce integrated health services e.g. accountable care organisations, local health community and population health programs, assessing cost and health quality improvements will need an adequate a framework to understand where improvements are attributed across multiple contributing organisations. Methods: The data sources include multiple studies from different countries. Primary Care and secondary care data were combined to create population databases, and casemix measurement was made using the Johns Hopkins ACG System. The distribution of the populations were analysed observing the share of activity and cost between primary, outpatient and inpatient services. The triple aim reporting framework suggested by Seow 2014 will be adapted to look at both temporal changes in cost distribution by health sector, and looking to identify and classify different organisation models. The Johns Hopkins ACG Adjusted Clinical Groups system was used to control for casemix complexity and multimorbidity. Results: Analysis of total costs across all sectors inpatient, outpatient, emergency care and primary care showed the increased costs associated with higher complexity and multimorbid patients. The distribution of utilisation and cost were different according to the complexity of patients but also by organisation. For example, the proportion of spend on primary care services was generally higher for lower complexity patients, with the proportion reducing with increased complexity, and in association, the increased spend on hospital services could be seen as complexity increased. But regional analyses also highlighted that these proportions of spend were different even when casemix complexity was held constant. The population level analyses showed different results with respect to cost efficiency than those shown in individual sectors. Discussion: In measuring organisational performance it is important to consider the extent of vertical integration in health services in fully understanding the cost effectiveness and efficiency of health systems. Isolating individual sectors of health care for measurement may lead to incorrect interpretation of results where interdependencies between services across different sectors exist. Policy makers need to be aware of the effect of activity shifting between health sectors, which can lead to increased complexity in all sectors, increases in average costs per sector, whilst the potential lower costs and convenience to patients are unmeasured Technical v Allocative efficiency. Casemix adjustment is an important consideration in measuring health care organisations, but to reduce confounding the inter and intra organisational dynamics and dependencies need to be considered.

Typology and Effects of Co-opetition in Buyer-Supplier Relationships: Evidence from the Chinese Home Appliance Industry. 供应链关系中竞合分类及其影响：来自中国家电业的实证研究

Building on the co-opetition perspective, this study takes a unified approach to examine relationship benefits and transaction costs in buyer–supplier relationships. We argue that buyer–supplier vertical dyads fall into one of four distinct co-opetition types based on their respective degrees of cooperation and competition. Each co-opetition situation then corresponds to unique levels of relationship benefits and transaction costs. A sample of 225 supplier–buyer dyads from the Chinese home appliance industry confirms that competition has a positive effect on transaction costs and a negative effect on relationship benefits, while cooperation stimulates greater relationship benefits but affects transaction costs mainly at low competition levels. The results advance prior research on buyer–supplier relationships and co-opetition and offer valuable avenues for future research. 摘要 基于竞合的观点，本文采用了一个整合的模型对供应链关系中的关系收益和交易成本进行了研究。本文认为，依据双方合作和竞争程度的不同，买卖双方间的交易关系可以划分为四种不同的竞合关系类型，且每种竞合类型分别对应不同的关系收益和交易成本水平。利用来自中国家电行业225对买卖双方的配对样本，本文发现，买卖双方间的竞争对交易成本有正向作用，对关系收益有负面影响；而双方间的合作会促进关系收益的提高，但只在竞争水平较低时，合作才会对交易成本产生影响。本文研究发展了以往关于买卖双方关系和竞合的相关文献，并指明了有价值的未来研究发展方向。

The two‐stage decision model of vertical integration

PurposeThe aim of this paper is to develop a two‐stage decision model of vertical integration by breaking down integration decisions into two stages: extent of integration and direction of integration.Design/methodology/approachThe study uses price premium as a proxy for differentiation‐based competitive advantage. The relationship between the extent of vertical integration and price premium through a vehicle of consumers' brand perception is explored. A segmentation‐based analysis is performed to study whether different vertical integration configurations are related to price premiums at different levels.FindingsVertical integration relates positively to price premium set by apparel companies; consumers' perception of brand quality mediates the relationship. Findings also suggest that an organization should opt for integration if vertical integration generates greater effect on price premium as relative to the cost. Strength of internal and forward integration is related strongly to higher price premiums than integration balance.Research limitations/implicationsFurther research is encouraged to test if the findings of this study can be generalized to other industries and/or other types of supplier relationship integration, e.g. partnership, strategic alliance and joint venture.Originality/valueAs a departure from extant literature, it is argued that vertical integration is a viable strategy that enables companies to gain differentiation‐based advantage. A conceptual model is developed and applied to the apparel industry, which explains critical issues involved in the design of supply chain structures.

Can firms be both broad and deep? Exploring the relationship between horizontal and vertical scope

This paper studies interdependencies between the horizontal breath and the vertical depth of firms. The related diversification literature suggests that firms grow in one direction or the other – that is, either horizontally or vertically. However, it is possible that synergies exist allowing firms to grow in both directions if they have slack resources and managerial excess capacity. This potential for interdependency between horizontal and vertical scope decisions and the effect of firm size is tested in the context of Chilean building contractors’ decisions of project types and extent of vertical integration. Our results show that the level of horizontal scope negatively affects the degree of vertical integration and that the magnitude of this negative effect is greater for larger firms. We do not find that vertical integration influences horizontal scope decisions. Thus, there is a relationship between depth and breadth but this relationship is not symmetric. Moreover, larger firms appear to face diseconomies of scope and inertia and thus find it difficult to expand both horizontally and vertically.

Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access

Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality”—including President Obama and the current FCC majority—believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation that transcends present-day antitrust law enforcement. In the economic terms that are used in debates on competition policy, the concern is with vertical integration that may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. This paper’s central point is that virtually every production process in the economy is vertically integrated, and economics predicts changes in the extent of vertical integration—that is, changes in the boundaries of the firm—in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets. While there is no shortage of theoretical models in which vertical integration may be harmful, most such models have restrictive assumptions and ambiguous welfare predictions—even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial—again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality, recently enacted by the FCC but subject to judicial review, is an unfortunate idea.

Antitrust and Vertical Integration in ‘New Economy’ Industries with Application to Broadband Access

Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality” – including President Obama and the current FCC majority – believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation transcending present-day antitrust law enforcement. Their objective is to protect the free and open culture of the Internet from efforts to foreclose or limit competition in the provision of content, including online video services, which they see as potential competition to older video distribution methods.In the economic terms used in debates on competition policy, the concern is with vertical integration which may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. Antitrust laws already provide tools to deal with such concerns, as illustrated by the antitrust breakup of the old Bell System, designed to remedy precisely these offenses. But, except in merger cases, antitrust usually is an ex post remedy. Do “new economy” industries have characteristics that make vertical integration so potentially pernicious that ex ante regulation is justified? Or do “new economy” industries on the contrary exhibit features that make ex ante regulation futile or even dangerous?The air in Washington is alive with contending voices taking sides on these issues. I engage the debate first by attempting to deconstruct the terms “vertical integration” and “new economy;” which turn out to be surprisingly elusive concepts. I briefly review theoretical and empirical work on vertical integration as it relates to antitrust policy, especially in “new economy” industries. I assume that the policy objective is to promote welfare. My goal is to identify circumstances in which vertical integration creates suspicion of adverse welfare effects sufficient to justify prophylactic (ex ante) regulation.The paper’s central point is that virtually every production process in the economy is in part vertically integrated, and economics predicts changes in the extent of vertical integration – that is, changes in the boundaries of the firm – in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets.While there is no shortage of theoretical models in which vertical integration may be harmful, most such modes have restrictive assumptions and ambiguous welfare predictions – even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial – again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality is an unfortunate idea.

Vertical Integration and Profitability in Poultry Industry in Ogun and Oyo States, Nigeria

This study examines economics of vertical integration in poultry industry in Ogun and Oyo States. The study examines the production systems and analyses costs and returns to non- integrated and vertically integrated poultry farms. Primary data were generated using structured questionnaires in a field survey of 100 non-integrated poultry farms, 70 partially integrated poultry farms and 40 fully integrated poultry farms. The analytical techniques employed include descriptive statistics and budgetary analysis. The gross margin analysis reveals that the fully integrated poultry production systems have the highest gross margin while the non-integrated poultry farms have the lowest gross margin per1000birds. The gross margin per 1000 bird realized by non-integrated poultry farms, partially integrated poultry farms and fully integrated poultry farms are N758, 828.07, N909, 973.06 and N985, 645.12, respectively. Likewise, the net farm income per 1000 birds for fully integrated poultry farm is higher than that of partially integrated poultry farm which is in turn higher than that of non-integrated poultry farms. The profitability indicators: value added-sales ratio, rate of return on investment and rate of return on fixed cost, increase with the extent of vertical integration, which confirms that vertical integration, is profitable in the poultry industry.

Determinants of Vertical Integration: Financial Development and Contracting Costs

ABSTRACTWe study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the interactions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial development by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contracting costs are more vertically integrated in more capital‐intensive industries.

Explaining Intraindustry Differences in the Extent of Vertical Integration

The central purpose of this paper is to examine firms' vertical integration decisions as a consequence of strategic choices within an explicit market environment. I show that a unique equilibrium number of unintegrated downstream firms exists when the intermediate-good market is imperfectly competitive and nonintegration leads to savings in fixed costs. The outcome may be one in which some firms produce the intermediate good internally while others do not, despite the fact that all firms have identical ex ante opportunity sets. Thus, my results provide an explanation for intraindustry differences in the vertical organization of firms.

Positioning for capitation in long-term care: a profile of vertical integration strategies in health and social service organizations.

During the next decade, the population over age 65 is expected to increase by 11% while the population over age 85 is expected to increase by 42%. These projections suggest that many organizations which currently provide services to the aged will be required to design a range of new products and services for this diverse population. Vertically integrated services provide a viable opportunity to competitively position an organization to respond to the diverse needs of an aged market. Since vertical integration will be essential in negotiating capitate contracts for the aged in the future, this study examined the extent of vertical integration in 116 health and social service organizations in an urban market with an expanding geriatric population.

Improved methodologies for vertical integration research

Vertical integration is a key strategic management decision which requires research support. Existing literature is extensive but is preoccupied with measures of the extent of vertical integration rather than the fundamental effectiveness of the strategy. The industrial community that the research seeks to benefit is left with an array of measures of integration and an array of widely differing conclusions regarding its potential benefit to a business. Research should be driven by customer need and the decision areas industrialists need to address should set the research agenda. Identifies the key issues relating to vertical integration and the extent to which these are addressed by existing methodologies. Develops a new methodology which avoids the intractable problem of measuring the extent of integration. Adoption of this methodology would enable more coherent and clear messages to be sent to management, thus enabling more informed decision making.

Franchising and Other Operating Arrangements in the Lodging Industry

The objective of this paper is to compare, along three strategic dimensions, franchising with other types of operating arrangements in the lodging industry. The operating arrangements studied are, in addition to franchising, chain-managed and independent hotels. The three strategic dimensions include: (1) the variability or volatility of the task environment facing a hotel; (2) the business strategy chosen by a hotel's general manager; and (3) the level of sales revenue and profit margin achieved by a hotel.The strategic management literature argues that an organization can only achieve superior performance when the characteristics of its task environment, its business strategy, and its decision structure (i.e., operating method or extent of vertical integration) are coaligned. Thus, comparing franchising with the two other operating arrangements along these dimensions seems to be a first step in determining franchising's role in successful strategic coalignments. Hypotheses linking the different operatin...

The effects of monetary instability on the extent of vertical integration

Ronald Coase [1937] provided the theoretical foundation for all subsequent studies of the determinants of business integration. Although the transaction-costs paradigm he developed has been accused of lacking empirical conten t -of being tautological-even by some of Coase's admirers [Alchian and Demsetz, 1972, p. 783; Williamson, 1985, p. 4], its influence is beyond question. Coase's article remains modern because the particular causal factors that he specified as determining the size of firms continue to be emphasized in recent work. The Coasean tradition is preserved in the present paper. The general goal is to examine the effects of monetary instability on the extent of vertical integration. A major theme of the paper is that, according to the transactioncosts paradigm, the effect of such instability on optimal firm size is ambiguous: distortions in price signals caused by price fluctuations set in motion two distinct forces. One of these forces tends to increase the extent of intrafirm integration of production activities, while the other tends to reduce this integration. The special object of this paper is to investigate empirically the relative strengths of these opposed forces. This paper is not a test of the transaction-costs theory of the firm. Rather, the authors use this theory as the basis for an empirical investigation of the effects of monetary instability on the extent of vertical integration. With these ends in mind, the paper proceeds as follows: Section II reviews the transaction-costs theory of the firm. Section II I

The Rise of Big Business in the World Copper Industry 1870-1930

y any measure, the world copper industry between the i87os and the ) 920S was characterized by the growth of large corporations. Assessed in terms of market share, the extent of vertical integration, or the accumulation of capital, the leading producers appear to have increasingly dominated the industry. By I929, the capital assets of the leading United States copper firms alone stood in the region of $I -5 billion, while the leading four firms in the industry (also American) controlled more than 50 per cent of world production. This, coupled with the growing presence of multinationals like Anaconda, Kennecott, and Rio Tinto in Latin America and Africa, led to continuing fears being expressed about the monopoly position of these enterprises. Recent research on the rise of the large-scale business corporation has reorientated analysis away from monopoly profit motives and more in the direction of responses to market imperfections, coupled with technological imperatives. In particular the work of Alfred Chandler and Oliver Williamson has emphasized the role of the large firm as an efficiency instrument, internalizing functions previously performed by the market.2 Increasingly, from this viewpoint, resource allocation and intermediate product exchange would be conducted within firms in order to minimize the transaction costs of using the market price mechanism.3 Chandler and Williamson in large measure derive their generalizations from the experience of manufacturing industry. Consequently, the growth of big business in the copper industry provides a valuable opportunity to assess recent theories of corporate growth in relation to extractive industry. It is the contention of this paper that technological pressures, rather than transactional considerations, have been more significant in the mining and smelting sectors than Williamson might allow, even though the refining and fabricating sectors of the copper industry probably conform more closely to his views.4 It is possible to show that in the mining industry the rise of big business resulted

Organizing for dual strategies of product diversity and international expansion

AbstractThis study examines organization structures of 37 large U.S. multinationals which are both highly diverse and heavily involved abroad. The findings show that the international division is still the most popular structure for this form of enterprise. However, Several other structures are also found to be in common use. An attempt is made to relate use of these structures to such strategic variables as extent of vertical integration, R & D intensity, level of foreign sales and method of diversifying.