How Wide is the Firm Border?
Enghin Atalay, University of Wisconsin Madison; Ali Hortacsu, University of Chicago; Mary Li, Compass Lexecon; Chad Syverson, University of Chicago
Abstract
We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries; 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. We then calibrate a multi- sector trade model to quantify the economy-wide implications of transacting across vs. within firm boundaries.