MSU is an Affirmative Action/Equal Opportunity Institution An Institutional Analysis of Vertical Coordination verses Vertical Integration: The Case of the US Broiler Industry

this documents for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. This paper analyzes the situation, structure and performance of broiler production. The inherent interdependence in broiler production is high transactions costs. Two types of transactions costs, asset specificity with uncertainty and high information costs, are identified and explored. The performances of the alternative structures, vertical integration and vertical coordination, are outlined. In broiler production, vertical coordination is preferred by both firms and growers because it minimizes transactions costs. These conclusions are extended to other agricultural commodities, using pork and rice as examples. 13 pages. The predominance of contract production in the broiler industry offers an excellent example for analyzing organizational structure. This paper will begin with a statement of the primary hypothesis which will be tested with theory and empirical data. Then a brief overview of the broiler industry will outline the assets and activities provided by each party. Finally, th