Organizing vertical markets

Abstract In recent years, supply relationships have undergone a process of change which the authors interpret as the transition from an adversarial model of vertical relations regulated by the invisible hand of market competition, to one based on cooperation and organized by the visible hand of the buyer. The term “organized vertical market” is proposed for this model. The incentivesto collaboration and the role of potential competition and reputation earned from past behaviour in deterring opportunism are highlighted. In the empirical section, the study considers the evolution of supply relations of Italtel, the leading Italian firm in the telecommunication equipment industry. Qualitative and quantitative evidence in support of the authors’ view is provided. The findings of the empirical analysis suggest that the changes in Italtel’s supply relations indicate the gradual and still in part incomplete transition towards the organized vertical market.

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