How Wide Is the Firm Border?

Atalay, Enghin; Hortacsu, Ali; Li, Mary Jialin; Syverson, Chad

doi:https://doi.org/10.21799/frbp.wp.2019.37

Working Paper

How Wide Is the Firm Border?

Abstract: We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and goods-distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries; that is, which transactions are mediated by ownership control, as opposed to contracts or markets. We find firm boundaries to be an economically significant barrier to trade: Having an additional vertically integrated establishment in a given destination ZIP code has the same effect on shipment volumes as a 40 percent reduction in distance. These effects are larger for high value-to-weight products, for faraway destinations, for differentiated products, and for IT-intensive industries.

https://doi.org/https://doi.org/10.21799/frbp.wp.2019.37