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How Wide Is the Firm Border?

Author

Listed:
  • Enghin Atalay
  • Ali Horta�su
  • Mary Jialin Li
  • Chad Syverson
Abstract
We quantify the normally unobservable forces that determine the boundary of the firm; that is, which transactions are mediated by ownership control as opposed to contracts or markets. To do so, we examine the shipment decisions of tens of thousands of establishments that produce and distribute a variety of products throughout the goods-producing sector. We examine how a firm�s willingness to ship over distance varies with whether the recipient is owned by the firm. Because shipping costs increase with distance for many reasons, a greater volume of internal transactions at any given distance reveals the size of the firm�s perceived net cost advantage of internal transactions. We find that the firm boundary is notably wide. Having one more vertically integrated downstream establishment in a location has the same effect on transaction volumes to that location as does a 40 percent reduction in distance between sender and destination. We further characterize how this �internal advantage� varies with observable attributes of the transaction or product being shipped. Finally, we conduct a calibration of a multi-sector general equilibrium trade model and find that costs associated with transacting across firm boundaries also have discernible economy-wide implications.

Suggested Citation

  • Enghin Atalay & Ali Horta�su & Mary Jialin Li & Chad Syverson, 2017. "How Wide Is the Firm Border?," Working Papers 17-35, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:17-35
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    References listed on IDEAS

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    Cited by:

    1. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    2. Johannes Boehm & Jan Sonntag, 2023. "Vertical Integration and Foreclosure: Evidence from Production Network Data," Management Science, INFORMS, vol. 69(1), pages 141-161, January.
    3. Bartelme, Dominick & Ziv, Oren, 2024. "The internal geography of firms," Journal of International Economics, Elsevier, vol. 148(C).
    4. Jean Imbs & Laurent L. Pauwels, 2020. "High Order Openness," Working Papers 20200047, New York University Abu Dhabi, Department of Social Science, revised Jun 2020.
    5. Adelaide Baronchelli & Raul Caruso, 2023. "Italian small arms exports: between incentives and international sanctions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(3), pages 1075-1106, October.
    6. Philippe Choné & Laurent Linnemer & Thibaud Vergé, 2021. "Double Marginalization and Vertical Integration," CESifo Working Paper Series 8971, CESifo.
    7. repec:spo:wpmain:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    8. Davide Del Prete & Armando Rungi, 2020. "Backward and Forward Integration Along Global Value Chains," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 263-283, September.
    9. CHEN Cheng & SUN Chang & ZHANG Hongyong, 2023. "Production and Ownership Networks," Discussion papers 23039, Research Institute of Economy, Trade and Industry (RIETI).
    10. repec:hal:wpspec:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    11. repec:hal:spmain:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    12. John (Jianqiu) Bai, 2021. "Organizational Form and Trade Liberalization: Plant-Level Evidence," Management Science, INFORMS, vol. 67(12), pages 7755-7784, December.
    13. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables," Papers 2407.03504, arXiv.org.
    14. repec:spo:wpecon:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    15. Gil, Ricard & Kim, Myongjin, 2021. "Does competition increase quality? Evidence from the US airline industry," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    16. Youngho Kang & Jeongmeen Suh, 2022. "Information technology and the spatial reorganization of firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 674-692, August.
    17. Basker, Emek & Kamal, Fariha, 2021. "Recall and response: Relationship adjustments to adverse information shocks," European Economic Review, Elsevier, vol. 139(C).
    18. Adelaide Baronchelli & Raul Caruso & Roberto Ricciuti, 2022. "Trade in Small Arms and Light Weapons: Are embargoes effective?," The World Economy, Wiley Blackwell, vol. 45(5), pages 1336-1361, May.
    19. Garg, Shresth & Ghosh, Pulak & Tan, Brandon Joel, 2023. "Within firm supply chains: Evidence from India," Journal of International Economics, Elsevier, vol. 144(C).

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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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