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Geographical Agglomeration as an Alternative to Vertical Integration

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Abstract

This paper provides empirical evidence of the relationship between agglomeration and vertical integration decisions. It contributes to the existing literature by first developing a conceptual framework that focuses on both opportunism risk and communication problems to explain how physical proximity among firms can be an alternative to internal organization. Second, this study tests this relationship through the use of firm-level data from 10,955 establishments in the Spanish meat industry. Results confirm that establishments located in agglomerated areas internally undertake fewer stages of the value chain. We also find that this relationship is weaker than expected and fades at distances greater than 2.5 km, which may be explained by the particular characteristics of this industry.

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Authors and Affiliations

  1. Departamento de Organización de Empresas, Facultad de Ciencias Economicas y Empresariales, Universidad Complutense de Madrid, Campus de Somosaguas, 28223, Madrid, Spain

    Isabel Diez-Vial & Emilio Alvarez-Suescun

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  1. Isabel Diez-Vial
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  2. Emilio Alvarez-Suescun
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Correspondence to Isabel Diez-Vial.

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Diez-Vial, I., Alvarez-Suescun, E. Geographical Agglomeration as an Alternative to Vertical Integration. Rev Ind Organ 36, 373–389 (2010). https://doi.org/10.1007/s11151-010-9251-y

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