Does vertical integration reduce investment reluctance in production chains? An agent-based real options approach

This paper uses an agent-based real options approach to analyze whether stronger vertical integration reduces investment reluctance in pork production. A competitive model in which firms identify optimal investment strategies by using genetic algorithms is developed. Two production systems are compared: a perfectly integrated system and a system in which firms produce either the intermediate product (piglets) or the final product (pork). Simulations show that the spot market solution and the perfectly integrated system lead to a very similar production dynamics even with limited information on production capacities. The results suggest that, from a pure real options perspective, spot markets are not significantly inferior to perfectly integrated supply chains.

Variant title:
Kann vertikale Integration die Investitionszurückhaltung in Wertschöpfungsketten reduzieren? Ein agentenbasierter Realoptionsansatz
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Working or Discussion Paper
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SiAg-Working Paper

 Record created 2017-04-01, last modified 2018-01-22

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