TY  - JOUR
AU  - Hortacsu,Ali
AU  - Syverson,Chad
TI  - Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12894
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12894
L1  - http://www.nber.org/papers/w12894.pdf
N1  - Author contact info:
Ali Hortacsu
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL  60637
Tel: 773/702-5841
E-Mail: hortacsu@uchicago.edu

Chad Syverson
Department of Economics
University of Chicago GSB
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/702-7815
Fax: 773/702-8490
E-Mail: syverson@uchicago.edu
AB  - 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.
ER  -