NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices

Ali Hortacsu, Chad Syverson

NBER Working Paper No. 12894
Issued in February 2007
NBER Program(s):   IO   PR

This paper empirically investigates the possible market power effects of vertical integration proposed in the theoretical literature on vertical foreclosure. It uses a rich data set of cement and ready-mixed concrete plants that spans several decades to perform a detailed case study. There is little evidence that foreclosure is quantitatively important in these industries. Instead, prices fall, quantities rise, and entry rates remain unchanged when markets become more integrated. These patterns are consistent, however, with an alternative efficiency-based mechanism. Namely, higher productivity producers are more likely to vertically integrate and are also larger, more likely to survive, and charge lower prices. We find evidence that integrated producers' productivity advantage is tied to improved logistics coordination afforded by large local concrete operations. Interestingly, this benefit is not due to firms' vertical structures per se: non-vertical firms with large local concrete operations have similarly high productivity levels.

download in pdf format
   (402 K)

email paper

This paper is available as PDF (402 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12894

Published: Ali Horta├žsu & Chad Syverson, 2007. "Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices," Journal of Political Economy, University of Chicago Press, vol. 115, pages 250-301. citation courtesy of

Users who downloaded this paper also downloaded these:
Syverson w10501 Market Structure and Productivity: A Concrete Example
Atalay, Hortacsu, and Syverson w18020 Why Do Firms Own Production Chains?
Acemoglu, Johnson, and Mitton w11424 Determinants of Vertical Integration: Finance, Contracts, and Regulation
Fan, Huang, Morck, and Yeung w14650 Vertical Integration, Institutional Determinants and Impact: Evidence from China
Syverson w15712 What Determines Productivity?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us