Affiliation, Integration, and Information: Ownership Incentives and Industry Structure
30 Pages Posted: 17 May 2001
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Affiliation, Integration, and Information: Ownership Incentives and Industry Structure
Affiliation, Integration, and Information: Ownership Incentives and Industry Structure
Date Written: May 2001
Abstract
This paper presents theory and evidence on horizontal industry structure, focusing on situations where plant-level scale economies are small and market power is not an issue. At issue is the question: what makes industries necessarily fragmented? The theoretical model distinguishes between the structure of brands and firms in an industry by examining trade-offs associated with affiliation and integration, and how they are affected by the contracting environment. I show how contractual incompleteness can lead industries to be necessarily fragmented. I also show that improvements in the contracting environment will tend to lead to a greater concentration of brands, but whether they lead industries to be more or less concentrated depends on what becomes contractible. I then discuss the propositions generated by the model through a series of case study examples.
Keywords: industry structure, integration, incomplete contracts
JEL Classification: L11, L22
Suggested Citation: Suggested Citation
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