Overview
The corporate boundary decision indicates which portions of the company's supply chain are to be internallized, and which are to be provided by the market. Some of the variations include:
- Vertical Integration
- Partnering
- Market Provided
The analysis by Coase concluded that companies will produce a supply chain input internally if the administrative costs were less that the transaction costs. (see below)
Market Costs/Benefits
- Increased Choice and Quality - turning to the market to supply some of the inputs in the supply chain gives a company a menu of products to choose from, and competition among suppliers can drive down costs. By producing internally, the company foregoes the choice and are stuck with the cost required for them to produce internally.
- Transaction Costs
Internal Costs/Benefits
- Increased Control - producing an input internally gives the company more control as the specifications of the input and its production
- Administrative Costs