Working Paper: NBER ID: w17889
Authors: Timothy F. Bresnahan; Jonathan D. Levin
Abstract: Contractual theories of vertical integration derive firm boundaries as an efficient response to market transaction costs. These theories predict a relationship between underlying features of transactions and observed integration decisions. There has been some progress in testing these predictions, but less progress in quantifying their importance. One difficulty is that empirical applications often must consider firm structure together with industry structure. Research in industrial organization frequently has adopted this perspective, emphasizing how scale and scope economies, and strategic considerations, influence patterns of industry integration. But this research has paid less attention to contractual or organizational details, so that these two major lines of research on vertical integration have proceeded in parallel with only rare intersection. We discuss the value of combining different viewpoints from organizational economics and industrial organization.
Keywords: No keywords provided
JEL Codes: D23; L14; L22; M20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| vertical integration (L22) | transaction costs (D23) |
| vertical integration (L22) | mitigate holdups (D86) |
| market structure (D49) | integration decisions (F15) |
| transactional frictions (L14) | vertical integration (L22) |
| complexity and uncertainty (D80) | arms-length contracting difficulties (L33) |