ENG ELC 220 Lecture Notes - Lecture 11: Vertical Integration, Agency Cost, Franchising
1 Nov 2020
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Document Summary
Icas summary chapter 4: vertical integration and its alternatives. Technical efficiency: the degree to which a firm uses the least-cost production process, i. e. how it maximizes its output given a certain input. Agency efficiency: the extent to which a firm"s exchange of goods and services in the vertical chain minimizes coordination, transaction and agency costs. Tapered integration: a combination of vertical integration and market exchange. A firm that uses tapered integration makes some quantity of the output internally and buys the rest from independent market firms. In a market transaction, these costs are associated with writing and enforcing contracts and negotiating exchange, coordination or leakage of private information. When produced internally, they represent internal agency and influence costs: a is positive for low levels of asset specificity (kk*). When asset specificity is low, holdup is not a significant problem.
