NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Incomplete Contracts and Industrial Organization

Gene M. Grossman, Elhanan Helpman

NBER Working Paper No. 7303
Issued in August 1999
NBER Program(s):   IO

We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a unique, specialized component. Vertically integrated firms can manufacture the components they need in the quantity and type that maximizes profits, but they face a relatively high cost of governance. Specialized firms can produce at lower cost, but input suppliers face a potential hold-up problem. We study the equilibrium mode of organization when inputs are fully or partially specialized. We consider how the degree of competition in the market and other parameters affect the equilibrium choices, and how the equilibrium compares with the efficient allocation.

download in pdf format
   (306 K)

email paper

This paper is available as PDF (306 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7303

Users who downloaded this paper also downloaded these:
Einav and Levin w15786 Empirical Industrial Organization: A Progress Report
Hart and Moore w6726 Foundations of Incomplete Contracts
Helpman and Grossman w9403 Managerial Incentives and the International Organization of Production
Helpman and Rangel w6551 Adjusting to a New Technology: Experience and Training
Helpman w6752 The Structure of Foreign Trade
 
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