By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.
We develop an organizational governance model with a single buyer
and endogenous upstream entry. Investments and control rights over
assets and actions are immediately contractable; production is contractable
after uncertainty resolves. We show the following: Supplier
competition eliminates pre-entry bargaining frictions. To minimize
post-entry bargaining frictions, control rights over assets and actions
are always bundled. If entry is sufficiently cheap, there is frictionless
post-entry competition, sometimes due to buyer sponsorship. Otherwise,
only one supplier enters. There is vertical integration if the asset’s
expected profitability is highest in the buyer’s favorite use; if not, the
buyer contracts with an autonomous supplier.
