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| Author: | Farrell, J. Monroe, H.K. Saloner, G. |
| Title: | The vertical organization of industry: Systems competition versus component competition |
| Journal: | Journal of Economics & Management Strategy
1998 : SUMMER, Vol.7:2, p.143-182 |
| Index terms: | organizational structure competitive advantage profitability |
| Language: | eng |
| Abstract: | There are two contrasting styles of vertical organization in an industry: systems competition versus component competition. When firms' competencies differ, systems competition is not a perfect substitute for component competition, even with Bertrand behavior. The two styles of vertical organization makes it hard to compare costs, prices, industry profits and the distribution of those profits among firms. Firms' profit incentives do not generally guide them towards the socially efficient form of vertical organization. There is a bias towards open organisation (component competition), but if there are three or more firms this bias is reversed. |
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