Abstract
Transactions between entities engaging in successive stages of production often take place outside the spot market. Some producers employ forward contracts to tie down price or quantity; others rely on some form of principal-agent arrangement; still others enter into joint stock ownership or even integrate vertically, thus, placing decision making in the hands of a single authority. These arrangements represent, in varying degrees, the producers’ attempts to bypass the market. In a market-oriented economy, such practices require careful explanation. The purpose of this paper is to study how market uncertainties motivate these arrangements and to explain why one of these arrangements or a combination of them is chosen under a given set of market conditions.
The authors wish to thank Professors David Baron, Roger Sherman and Charles Holt for their helpful comments on an early draft of this paper.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Arrow, K.J., “Vertical Integration and Communication,” Bell Journal of Economics, Vol. 6 (Spring 1975 ): 173–183.
Balch, M. and S. Wu, “An Introduction to Economic Behavior Under Uncertainty,” in Essays on Economic Behavior Under Uncertainty, eds. M. Balch, D. McFadden, and S. Wu. North Holland, 1974.
Baron, D.P., “Price Uncertainty, Utility and Industry Equilibrium in Pure Competition,” International Economic Review, Vol. 11 (October 1970): 463–480.
Blair, R.D. and D.L. Kaserman, “Uncertainty and Incentive for Vertical Integration,” Southern Economic Journal (July 1978): 266–272.
Burstein, M.L., “A Theory of Full-Line Forcing,” Northwestern University Law Review, Vol. 55 (March/April 1960 ): 62–95.
Carlton, D.W., “Vertical Integration in Competitive Market Under Uncertainty,” Journal of International Economics, Vol. 27, No. 3 (March 1979).
Carlton, D.W., “Contracts, Price Rigidity and Market Equilibrium,” Journal of Political Economy (October 1979): 1034–1062.
Coase, R.H., “The Nature of the Firm,” Economica, Vol. 4 (November 1937): 386–405.
Greenhut, M.L. and H. Ohta, “Vertical Integration of Successive Oligopolists,” American Economic Review, Vol. 69 (March 1979): 137–141.
Hay, G.A., “An Economic Analysis of Vertical Integration,” Industrial Organization Review, Vol. 1 (1973): 188–198.
Horen, J. and S. Wu, “Partial Vertical Integration,” mimeographed, 1982
Kaserman, D.L., “Theories of Vertical Integration: Implications for Anti-Trust Policy,” The Anti-Trust Bulletin (1978): 483–510.
Klein, B., R.C. Crawford and A.A. Alchian, “Vertical Integration, Appropriate Rents and the Competitive Contract Process,” Journal of Law and Economics (October 1978): 297–326.
Peltzman, S., “Issues in Vertical Integration Policy,” in Public Policy Toward Mergers. Goodyear, 1969.
Perry, M.K, M.K., “The Theory of Vertical Integration by Imperfectly Competitive Firms,” Center for Research in Economic Growth, Memorandum No. 197, Stanford University, 1975.
Perry, M.K. “Price Discrimination and Forward Integration,” Bell Journal of Economics, Vol. 9 (Spring 1978 ): 209–217.
Schmalensee, R., “A Note on the Theory of Vertical Integration,” Journal of Political Economy,Vol. 81 (March/April 1973 ): 442–449.
Shavell, S., “Risk Sharing and Incentives in the Principal and Agent Relationship,” Bell Journal of Economics, Vol. 10 (Spring 1975 ): 163–172.
Spence, A.M., “The Economics of Internal Organization: An Introduction,” Bell Journal of Economics, Vol. 6 (Spring 1975 ): 163–172.
Vernon, J.M. and D.A. Graham, “Profitability of Monopolization by Vertical Integration,” Journal of Political Economy, Vol. 79 (September/October 1971 ): 924–925.
Warren-Boulton, F.R., “Vertical Control with Variable Proportions,” Journal of Political Economy, Vol. 82 (July/August 1974 ): 783–802.
Williamson, O.E., “The Vertical Integration of Production: Market Failure Considerations,” American Economic Review, Vol. 61 (May 1971): 112–123.
Wu, S.Y., “The Effects of Vertical Integration on Price and Output,” Western Economic Journal, Vol. 2 (1964): 117–133.
Wu, S.Y. “An Essay on Monopoly Power and Stable Price Policy,”American Economic Review, Vol. 69 (March 1979): 60–72.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1989 Springer-Verlag New York Inc.
About this paper
Cite this paper
Horen, J., Wu, S.Y. (1989). Vertical Transactions under Uncertainty. In: Fomby, T.B., Seo, T.K. (eds) Studies in the Economics of Uncertainty. Springer, New York, NY. https://doi.org/10.1007/978-1-4613-8922-4_9
Download citation
DOI: https://doi.org/10.1007/978-1-4613-8922-4_9
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4613-8924-8
Online ISBN: 978-1-4613-8922-4
eBook Packages: Springer Book Archive