We analyze in an incomplete contracts model whether a supplier should be integrated if in addition to his investment level he chooses the degree of relationship specificity. A basic trade-off arises: While non-integration leads to higher investment incentives, potential synergies are foregone....

We analyze in an incomplete contracts model whether a supplier should be integrated if in addition to his investment level he may choose the intensity of specialization towards the needs of the buyer. A basic trade-off arises: While non-integration may lead to higher investment incentives,...