Outsourcing versus Vertical Integration: A Dynamic Model of Industry Equilibrium.1

Abstract

Empirical evidence shows that vertically integrated producers are more productive, bigger and are matched to better suppliers (with high productivity and size). I present a dynamic stochastic model of an industry with heterogeneous …rms interacting as buyers and sellers, and market frictions that induce a hold-up problem to the manufacturers to account for… (More)

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