2007/04/01 by Ali Hortaçsu, Alı Hortaçsu, Chad Syverson · 257 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Business #Corporate Finance and Governance #Economics #Foreclosure #Global trade and economics #Industrial organization #Macroeconomics #Market power #Merger and Competition Analysis #Microeconomics #Natural resource economics #Productivity #Vertical integration
paper · doi:10.1086/514347
published in Journal of Political Economy 115(2), 250-301 (University of Chicago Press)
openalex publication_date 2007/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
This paper empirically investigates the possible market power effects of vertical integration proposed in the theoretical literature on vertical foreclosure. It uses a rich data set of cement and ready‐mixed concrete plants that spans several decades to perform a detailed case study. There is little evidence that foreclosure is quantitatively important in these industries. Instead, prices fall, quantities rise, and entry rates remain unchanged when markets become more integrated. These patterns are consistent, however, with an alternative efficiency‐based mechanism. Namely, higher‐productivity producers are more likely to vertically integrate and are also larger, more likely to survive, and more likely to charge lower prices. We find evidence that integrated producers’ productivity advantage is tied to improved logistics coordination afforded by large local concrete operations. Interestingly, this benefit is not due to firms’ vertical structures per se: nonvertical firms with large local concrete operations have similarly high productivity levels.