How Wide is the Firm Border?

Enghin Atalay (University of Wisconsin Madison)
Ali Hortacsu (University of Chicago)
Mary Li (Compass Lexecon)
Chad Syverson (University of Chicago)

Abstract: We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries; which transactions are mediated by ownership control, as opposed to contracts or markets. We find firm boundaries to be an economically significant barrier to trade: having an additional vertically integrated establishment in a given destination zip code has the same effect on shipment volumes as a 40 percent reduction in distance. We then calibrate a multi- sector trade model to quantify the economy-wide implications of transacting across vs. within firm boundaries.

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