Economic Theory Seminar - Richard Holden (UNSW)

Title:  Coordinating Supply Chains

Abstract:  Many complex final goods require a large number of inputs to come together in a timely and efficient manner for production to be successful.  Notable examples include lithography machines used to make semiconductors, aeroplanes, and lasers. We build a model to analyze this coordination problemand show how coordination can be achieved.   There is a manufacturer en-dowed with capital who needs an input from each ofnsuppliers to produce afinal good. The manufacturer may pay a markup to overcome supplier reluc-tance and achieve coordination.  Coordination can also be achieved throughintegration, but integration inflates costs due to a lack of congruence betweenmanufacturer  and  supplier.   We  model  integration  and  the  associated  costinflation along the lines of Aghion and Tirole (1997). We derive sharp predictions about firm structure and apply our model to a number of applications including International Trade and Industry Policy.