Economising, Strategising and the Vertical Boundaries of the Firm

Dermot Leahy, Catia Montagna

Research output: Working paperDiscussion paper

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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/vertically integrate and show that firm asymmetries can emerge endogenously, with firms choosing different modes of operation, even when they are ex-ante identical. We apply our model to a number of different international trading setups.
Original languageEnglish
PublisherUniversity of Aberdeen: Business School
Number of pages41
Publication statusPublished - Jul 2015

Publication series

NameDiscussion Paper in Economics
PublisherUniversity of Aberdeen
ISSN (Electronic)0143-4543


  • Oligopoly
  • Outsourcing
  • Vertical Integration
  • Trade Liberalisation


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