This paper develops a relational contracting model to show how fiat - a principal's ability to dictate her agent's performance - emerges in equilibrium under vertical integration, even when integration does not allocate distinctive formal authority to the principal. In a vertical structure, an...

Business to Business (B2B) causes a significant contraction of transaction costs. According to the Coase paradigm we would thus expect a deverticalization of the industry and broader scope for anonymous market mechanisms. In reality, such expectations are not fully borne out by the facts. When...

When successive monopolies transact through noncooperative linear pricing, the resulting double markup decreases their joint profits relative to vertical integration. However, if there are downstream rivals (which are not double marginalized), the same noncooperative interaction often...

The wine industry in the United States has grown tremendously over the past few decades, from fewer than 1,000 wineries in 1980 to upward of 8,500 today. The growth has occurred over a period that has seen substantial changes in the structure of the wine industry, the modes of distribution...

This paper adopts the incomplete contracting perspective to study a firm's continuous choice between producing an essential input in-house (full integration), buying it from an outside supplier (non-integration) and doing a combination of both (tapered integration), when (i) an idiosyncratic...

Inspired by facts from the private sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design, and is faced with a trade-off between providing incentives and reducing ex...

Transaction cost economics (TCE) is a multidimensional research program which takes its origin from contributions made by Hicks (1935), Coase (1937), Alchian and Demsetz (1972). Therefore, TCE can be divided into three complementary domains: exchange branch, governance branch and measurement...