6 - Power

Summary

In this chapter we consider supply chains, meaning the sequence of markets in an industry. For example, when the artist Damien Hirst hosted an auction of his own work at Sotheby’s London in 2008, he bypassed his dealers, leapfrogging over a stage of the typical supply chain. Supply chains are also sometimes vertically integrated markets, meaning the same firm owns many stages of these sequential markets. Vertical integration is the process by which a firm enters into the business area of its supplier or its customer, via acquisition, competition, or long-term contract. Vertical market power is often motivated by power or avoidance of different forms of market failure. Here, we are not (as in Chapter 4) talking about failure of the alignment of price and value but failure to transact reliably and without risk or undue cost. We explore related concepts of asset specificity and then business strategy models that take the supply chain as their spine.