VERTICAL INTEGRATION AND VERTICAL RESTRAINTS

While the first business organizations to reach large size in the late nineteenth century did so through the route of vertical integration—formal ownership of assets and direct employment of workers—mid-twentieth-century franchising firms pioneered a new path to bigness, relying on restrictive contracts rather than formal integration to control their business organizations. Franchised chains replaced formal ownership and employment with contractual mechanisms known as vertical restraints (contractual controls on separate firms, such as price and supplier restrictions) to achieve uniformity and control over their outlets, without directly owning them. While most existing accounts of franchising focus on efficiency reasons for the evolution of the business form, this paper identifies a policy and legal mechanism: the relaxing of antitrust prohibitions on vertical restraints. These policy and legal changes were heavily lobbied for by franchising firms themselves. Whatever the efficiency implications of franchising, the increasing legalization of vertical restraints also had the benefit for franchising firms of allowing them to pull in the legal boundaries of the firm, leaving workers and other stakeholders outside. At the same time that they pursued franchising as a kind of vertical integration by other means, franchisors lobbied to preserve the legal benefits of having franchisees considered separate firms under a variety of laws, such as access to Small Business Administration loans and exclusion of workers at franchised establishments from access to collective bargaining and other rights against them.

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Franchising, Vertical Integration, and Vertical Restraints

The Economics of Franchising ◽

10.1017/cbo9780511753879.005 ◽

2005 ◽

pp. 82-116

Keyword(s):

Vertical Integration ◽

Vertical Restraints

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Vertical Integration and Vertical Restraints

Markets and Organization ◽

10.1007/978-3-642-72043-7_25 ◽

1998 ◽

pp. 557-575

Author(s):

Jackie Krafft

Keyword(s):

Vertical Integration ◽

Vertical Restraints

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Vertical Integration and Exclusive Vertical Restraints between Insurers and Hospitals

SSRN Electronic Journal ◽

10.2139/ssrn.1781685 ◽

2011 ◽

Cited By ~ 3

Author(s):

Rudy Douven ◽

Rein Halbersma ◽

Katalin Katona ◽

Victoria Shestalova

Keyword(s):

Vertical Integration ◽

Vertical Restraints

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Vertical Restrictions: Development of Theory, Antitrust Legislation and Enforcement

Voprosy Ekonomiki ◽

10.32609/0042-8736-2010-5-110-122 ◽

2010 ◽

pp. 110-122 ◽

Cited By ~ 2

Author(s):

S. Avdasheva ◽

N. Dzagurova

Keyword(s):

Institutional Theory ◽

Institutional Economics ◽

Theory Of The Firm ◽

New Institutional Economics ◽

Hierarchical Organization ◽

Vertical Restraints ◽

New Institutional Theory ◽

Antitrust Laws ◽

Antitrust Legislation ◽

Market Organization

The article examines the interpretation of vertical restraints in Chicago, post-Chicago and New Institutional Economics approaches, as well as the reflection of these approaches in the application of antitrust laws. The main difference between neoclassical and new institutional analysis of vertical restraints is that the former compares the results of their use with market organization outcomes, and assesses mainly horizontal effects, while the latter focuses on the analysis of vertical effects, comparing the results of vertical restraints application with hierarchical organization. Accordingly, the evaluation of vertical restraints impact on competition differs radically. The approach of the New Institutional Theory of the firm seems fruitful for Russian markets.

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Assessing the size of agricultural holdings

Voprosy Ekonomiki ◽

10.32609/0042-8736-2020-10-105-116 ◽

2020 ◽

pp. 105-116

Author(s):

N. I. Shagaida

Keyword(s):

Russian Federation ◽

Vertical Integration ◽

Total Revenue ◽

Large Share ◽

State Support ◽

The Russian Federation ◽

Agricultural Organizations ◽

Business Entities ◽

To Receive

The article clarifies the concept of “agricultural holding”, using an approach to assessing the size on the basis of the total revenue of all agricultural organizations within the agricultural holding. It has been revealed that only 100 of the total number of agricultural holdings that were identified can be attributed to large business entities. They comprise about 3% of agricultural organizations in the country, while their share in the proceeds is about 37%. A large share of agricultural holdings — large business subjects under the control of Russian entities operate in one, and under the control of foreign legal entities — in three or more regions of the Russian Federation. Vertical integration within the framework of large agricultural holdings with different schemes for including the stages of processing and sale of products produced in their agricultural organizations allows them to receive advantages. Strengthening the role of large business entities in agriculture puts on the agenda the issue of differentiating approaches to taxation and state support in agriculture, depending on the size of the companies’ agricultural businesses.

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