Economising, Strategising and the Vertical Boundaries of the Firm

Dermot Leahy, Catia Montagna* (Corresponding Author)

*Corresponding author for this work

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We bridge the organisational economics and industrial economics literatures on the vertical boundaries of the firm by contextualising the transaction cost approach to the make-or-buy decision within an oligopolistic market structure. Firms invest in the quality of the intermediate resulting in the endogenous determination of the price of the intermediate and marginal production cost of the final good. We highlight new strategic incentives to outsource and/or vertically integrate and show how these incentives can result in asymmetric-mode-of-operations, investment and costs. We apply our model to a number of different international trading setups.
Original languageEnglish
Article number20150085
Number of pages35
JournalB.E. Journal of Theoretical Economics
Issue number1
Early online date17 Jun 2016
Publication statusPublished - Jan 2017

Bibliographical note

Acknowledgments: We are grateful to Celine Azemar, Ron Davies, Rodolphe Desbordes, Hartmut Egger, Holger Görg, Michael Moore, Ali Naghavi, Peter Neary, Pascalis RaimondosMøller, Ian Wooton and two anonymous referees for useful comments and suggestions. The usual disclaimer applies.


  • Oligopoly
  • Outsourcing
  • Vertical Integration
  • Trade Liberalisation


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