Management Incentives, Signaling Effects and the Costs of Vertical Integration
Management Incentives, Signaling Effects and the Costs of Vertical Integration
Sliwka, Dirk, "Management Incentives, Signaling Effects and the Costs of Vertical Integration" (August 2003). IZA Discussion Paper No. 856. Abstract: The costs of vertical integration are analyzed within a game-theoretic signaling model. It is shown that a company when being vertically integrated with a supplier may well decide to buy certain components from this supplier even at a lower quality than that offered by external sources. When the parent company decides to stop buying components from the integrated supplier, the value of the ownership share in the supplier is reduced: On the one hand, the supplier's profit from the transactions with its parent is foregone. But on the other hand, other clients may decide against buying from this supplier as the latter's reputation for providing an appropriate quality is damaged. The loss in value of the ownership share may outweigh the loss due to the lower quality. The anticipation of this effect leads to reduced ex ante incentives for the supplier's management to raise quality. A spin-off may therefore be beneficial as it strengthens incentives. Costs and benefits of vertical integration are analyzed and consequences for vertically integrated companies organized in profit centers are discussed. Go to article
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Facts on MBA
In 1881 the Chamber of Commerce and Industry of Paris founded École des Hautes Études Commerciales (HEC) as one of the first business schools in France. In 1898 the University of St. Gallen was also founded as one of the first business schools in Europe.
In 1969, HEC started the HEC MBA Program. However, unless otherwise specified as Mini MBA program leading to an award and formal alumni status, quality of open-executive programs are not comparable with a formal MBA degree.
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