A Strategic Rationale for Captive Supplies
Partial backward integration is prevalent in many agricultural and natural resource processing industries. A strategic rationale for partial backward integration is developed for a dominant firm with a competitive fringe purchasing from competitive input suppliers. A partially backward integrated do...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Western Agricultural Economics Association
1999-07-01
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| Series: | Journal of Agricultural and Resource Economics |
| Subjects: | |
| Online Access: | https://ageconsearch.umn.edu/record/30868 |
| _version_ | 1818358838940663808 |
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| author | H. Alan Love Diana M. Burton |
| author_facet | H. Alan Love Diana M. Burton |
| author_sort | H. Alan Love |
| collection | DOAJ |
| description | Partial backward integration is prevalent in many agricultural and natural resource processing industries. A strategic rationale for partial backward integration is developed for a dominant firm with a competitive fringe purchasing from competitive input suppliers. A partially backward integrated dominant firm potentially can increase profit through production efficiency gains and through a lower price for externally purchasing input. The optimal degree of backward integration results when the dominant firm's profit from exerting monopsony market power in the external spot market equals its profit from producing raw input internally, less the incremental cost of acquiring internal raw input production capacity. Comparative statics results are consistent with recent empirical studies of the beef packing industry. |
| first_indexed | 2024-12-13T20:35:22Z |
| format | Article |
| id | doaj.art-d0cd450f290a4400b16bbaf8959e9ef8 |
| institution | Directory Open Access Journal |
| issn | 1068-5502 2327-8285 |
| language | English |
| last_indexed | 2024-12-13T20:35:22Z |
| publishDate | 1999-07-01 |
| publisher | Western Agricultural Economics Association |
| record_format | Article |
| series | Journal of Agricultural and Resource Economics |
| spelling | doaj.art-d0cd450f290a4400b16bbaf8959e9ef82022-12-21T23:32:19ZengWestern Agricultural Economics AssociationJournal of Agricultural and Resource Economics1068-55022327-82851999-07-0124111810.22004/ag.econ.3086830868A Strategic Rationale for Captive SuppliesH. Alan LoveDiana M. BurtonPartial backward integration is prevalent in many agricultural and natural resource processing industries. A strategic rationale for partial backward integration is developed for a dominant firm with a competitive fringe purchasing from competitive input suppliers. A partially backward integrated dominant firm potentially can increase profit through production efficiency gains and through a lower price for externally purchasing input. The optimal degree of backward integration results when the dominant firm's profit from exerting monopsony market power in the external spot market equals its profit from producing raw input internally, less the incremental cost of acquiring internal raw input production capacity. Comparative statics results are consistent with recent empirical studies of the beef packing industry.https://ageconsearch.umn.edu/record/30868backward integrationcaptive suppliesdominant firmfringe firmsmeat packingmonopsonyprice discriminationvertical integration |
| spellingShingle | H. Alan Love Diana M. Burton A Strategic Rationale for Captive Supplies Journal of Agricultural and Resource Economics backward integration captive supplies dominant firm fringe firms meat packing monopsony price discrimination vertical integration |
| title | A Strategic Rationale for Captive Supplies |
| title_full | A Strategic Rationale for Captive Supplies |
| title_fullStr | A Strategic Rationale for Captive Supplies |
| title_full_unstemmed | A Strategic Rationale for Captive Supplies |
| title_short | A Strategic Rationale for Captive Supplies |
| title_sort | strategic rationale for captive supplies |
| topic | backward integration captive supplies dominant firm fringe firms meat packing monopsony price discrimination vertical integration |
| url | https://ageconsearch.umn.edu/record/30868 |
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