Firms, Organizations and Contracts: A Reader in Industrial Organization

By Peter J. Buckley; Jonathan Michie | Go to book overview

11
Vertical Quasi-Integration

K. J. Blois


1. Introduction

The recent financial problems of Rolls-Royce Ltd., have acted as an effective reminder of the extensive interdependence of business organizations within the British economy. The fact that, if Rolls-Royce had ceased to trade, then a large number of supplying organizations would have found themselves in severe financial difficulties is a reminder that, although these suppliers are legal entities separate from Rolls-Royce, such organizations are extensively dependent on and inter-related with Rolls-Royce. This situation is not peculiar to Rolls-Royce or even to the aero-engine industry, for there are many firms whose financial collapse would seem likely to result in the failure, or at least severe disruption, of a large number of supplying firms and the financial difficulties of Upper Clyde Shipbuilders Ltd. provide another illustration of this. Indeed the repercussions of such a failure would extend far beyond the legal entity of the firm which originally failed.

The relationship between firms and their suppliers is obviously complex and this paper seeks to describe certain aspects of this relationship. It will discuss under what conditions a supplier can become dependent upon a particular customer and will also discuss the ways in which a large customer is able to assert its influence over a supplier and the types of influence brought to bear. Finally it will consider whether or not a situation is developing in certain cases where some firms are gaining the advantages of vertical integration (i.e. the organization of production under which a single business unit carries on successive stages in the processing or distribution of a

____________________
The author wishes to acknowledge the support of a Houblon-Norman Grant for research into this topic.

-320-

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Firms, Organizations and Contracts: A Reader in Industrial Organization
Table of contents

Table of contents

  • Title Page iii
  • Preface and Acknowledgements v
  • Acknowledgements vi
  • Contents viii
  • List of Contributors xi
  • Foreword xiii
  • Introduction and Overview 1
  • Notes 18
  • References 20
  • I. THEORY OF THE FIRM 21
  • 1: The Equilibrium of the Firm 23
  • 2: The Nature of the Firm 40
  • 3: The Organization of Industry 59
  • 4: Production, Information Costs, and Economic Organization 75
  • Summary 95
  • Notes 96
  • References 102
  • 5: Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure 103
  • Conclusions 151
  • Notes 151
  • References 163
  • 6: Transaction-Cost Economics: The Governance of Contractual Relations 168
  • Conclusion 192
  • 7: An Economist's Perspective on the Theory of the Firm 199
  • Conclusion 212
  • Notes 212
  • II. MARKETS AND INDUSTRIAL ORGANIZATION 219
  • 8: Corporate Culture and Economic Theory 221
  • Introduction 221
  • Conclusion 261
  • Appendix 262
  • Appendix 271
  • Appendix 273
  • References 274
  • 9: Co-operative Agreements and the Organization of Industry 276
  • References 292
  • 10: Interpenetration of Organization and Market: Japan's Firm and Market in Comparison with the US 293
  • Conclusion 317
  • References 319
  • 11: Vertical Quasi-Integration 320
  • Conclusions 336
  • Notes 337
  • 12: Non-Contractual Relations In Business: A Preliminary Study 339
  • 13: Goodwill and the Spirit of Market Capitalism 359
  • III. JOINT VENTURES, NETWORKS, AND] CLANS 383
  • III. JOINT VENTURES, NETWORKS, AND] CLANS 385
  • References 407
  • 15: Joint Ventures 410
  • Conclusion 427
  • References 428
  • 16: Organizations: New Concepts for New Forms 429
  • Conclusion 440
  • Notes 441
  • 17: Markets, Bureaucracies, and Clans 442
  • References 456
  • Notes 459
  • References 473
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