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Vertical Ownership and Export Performance: Firm‐Level Evidence from the Food Industry
Author(s) -
Gaigné Carl,
Latouche Karine,
Turolla Stéphane
Publication year - 2018
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aax071
Subject(s) - upstream (networking) , business , industrial organization , intermediary , productivity , externality , foreign ownership , distribution (mathematics) , vertical integration , export performance , monetary economics , commerce , economics , microeconomics , foreign direct investment , marketing , computer network , mathematical analysis , mathematics , computer science , macroeconomics
This article examines whether ownership arrangements between food firms and intermediaries improve the export performance of the former. We develop a theoretical model of trade with vertically‐linked industries whereby upstream manufacturers compete in export markets and may decide to acquire ownership stakes in an intermediary. The model highlights how more productive firms succeed in managing the double marginalization problem and in reducing the costs of exporting through forward acquisition. The predictions from the model are tested using firm‐level data on the French food industry. The results demonstrate that acquiring an intermediary lowers prices and distribution costs, and reveal that the benefits from forward acquisitions can be quite large. Conversely, we find that vertical ownership creates a market externality among manufacturers due to the reallocation of market shares from small firms to large firms, thereby forcing some low‐productivity firms to exit foreign markets.