Integration and its alternatives Flashcards
What are the main drivers of vertical integration?
- Economies of scale
- Market size and growth
- Asset specificity
What are decisions to make or buy be determined by?
Transaction cost minimising motives
What are the costs of the market system
- Cost of discovering prices
- Costs of drawing up contracts
- Difficulties of specifying details in a contract
Costs of direct control include:
- Inflexibility
- Lack of competition
Assets that have value in alternative uses are:
Lower in value
What is technical efficiency?
When a firm uses the least-cost production process
What is agency efficiency?
When the costs of coordination, agency and transaction costs are minimised
What is technical efficiency?
How much the cost of in house production exceeds external costs of production
What may override the difference in technical efficiency?
The nature of the assets involved in production
What is agency efficiency?
How much the internal transaction costs exceed the external transaction costs for an activity
What is ∆C?
The sum of ∆T + ∆A
What is ∆T?
Technical efficiency
What is ∆A?
Agency efficiency
When ∆C is positive:
In house production is more costly than relying on market specialists
When ∆C is negative:
In house production is less costly than reliance on market specialists
