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Trade and Market Thickness: Effects on Organizations

John McLaren
Journal of the European Economic Association
Vol. 1, No. 2/3, Papers and Proceedings of the Seventeenth Annual Congress of the European Economic Association (Apr. - May, 2003), pp. 328-336
Published by: Wiley on behalf of European Economic Association
Stable URL: http://www.jstor.org/stable/40005182
Page Count: 9
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Trade and Market Thickness: Effects on Organizations
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Abstract

Globalization, by raising the number of buyers available to each seller and the number of sellers available to each buyer, raises the thickness, or the effective number of participants, of every market. Market thickness can have subtle effects on incentives and organizations, alleviating hold-up problems, resulting in less vertical integration, more informal contracting, and more cooperative and innovative relationships with subcontractors. However, it can also weaken long-run relationships, distorting relationship- specific investments and risk-sharing. This paper surveys the theory and empirical evidence, indicating when market thickness helps and when it hurts.

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