Publication

This working paper is concerned with the phenomenon of vertical outsourcing of production, more specifically how it seems to be co-evolving with the increase of horizontal integration in the component sector. In order to explain this trend, the author incorporates the concept of modularity into an industry-equilibrium model with monopolistic competition, one which allows the organization of the firm to be endogenous in both the vertical and horizontal dimensions of production. Three production structure regimes are identified and the model applied to each.