| Paper No: | 1329 |
| Title: | The Vertical Organization of Industry: Systems Competition Versus Component Competition |
| Publication Year: | 1994 |
| Author(s): | Hunter K. Monroe; Garth Saloner; Joseph Farrell |
| Abstract Text: | We discuss two contrasting styles of vertical organization of an industry with complementary activities or components: systems competition versus component competition. When firm's competencies differ, systems competition is not a perfect substitute for component competition, even with Bertrand behavior. Costs, prices, industry profits, and the distribution of those profits among firms all differ between the two styles of organization. Firms' profit incentives do not generally guide them towards the socially efficient form of vertical organization. In duopoly, there is a bias towards open organization (component competition), but with enough firms (three or more, in an exponential example) this bias is reversed. |
| Published In: | Journal of Economics and Management Strategy, Summer 1998, Vol. 7 Issue 2, pp. 143-182 |
| Keywords: | |
| Paper Copy Available: | No |
| Electronic Copy Available: | No |
