We study the relationship between firms’ output quality and organizational structure. Using data onthe production and transaction chain that makes up Peruvian fishmeal manufacturing, we establish threeresults. First, firms integrate suppliers when the quality premium rises for exogenous reasons. Second,suppliers change their behavior to better maintain input quality when vertically integrated. Third, firmsproduce a highershareof high-quality output when weather and supplier availability shocks shift theminto using integrated suppliers. Overall, our results indicate that quality upgrading is an important motivefor integrating suppliers facing a quantity-quality trade-off, as classical theories of the firm predict.