“Partial versus total disintegration of exporting firms”

The choice between total, partial vertical disintegration and pure integration in an uncertain environment is a strategic choice whenever perfect competition is assumed away. In an international stochastic quantity setting duopoly with transport costs and countries showing different degree of home bias we analyze the decision concerning the vertical organisation of profit maximising firms. In many circumstances vertical integration appears the best choice for firms. However, if vertical integration is not allowed because of vertical restraint coming from trade policies or other international hindrances, vertical disintegration may become sometimes desirable. In the case of joint input production (JIP) the dominant strategy becomes partial vertical disintegration even when vertical integration is allowed. This may make some trade policies imposing vertical restraints needless when JIP is available.