Incomplete Contract, Specific Investment and Vertical Integration
XU Bin
(School of Business Administration, Center for Cluster and Enterprise Development, Jiangxi University of Economics and Finance, Nanchang 330013, China)
Abstract：
This paper discusses specific investment level of market trade, long-term contract and vertical integration under the condition of incomplete contract. It is found that vertical integration can attain optimal specific investment level, and specific investment level of downstream firm under long-term contract is higher than under market trade. In order to make up shortage of specific investment under market trade, an advisable way not only is vertical integration, but also long-term contract under special case, but its investment incentive is lower than under vertical integration.
2013 
