Appropriable Rents and Quasi-Vertical Integration

A common organizational form in industrial economies is what may be called quasi-vertical integration: the ownership by a downstream firm of the specialized tools, dies, jigs, and patterns used in the fabrication of components for larger systems.' In the automobile industry, for instance, Crandall notes that "assemblers have always insisted upon ownership of all special tooling utilized by suppliers in fabricating parts for the vehicle companies. Even if the supplier manufactures the tooling himself, it immediately becomes the property of the assembler.''2 Similarly, the ownership by assemblers of specialized molds and patterns housed in suppliers' facilities has been noted in the plastics and steam turbine industries.3 Quasi-vertical integration differs from full vertical integration in that the downstream firm still contracts with a supplier for the actual manufacture of the component, whereas with full vertical integration the production process itself is internalized.