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The competitive advantage potential of vertical integration

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  • Fronmueller, M. P.
  • Reed, R.
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    Abstract

    There is a widely held belief that backward vertical integration provides firms with the potential for a low-cost competitive advantage, and forward vertical integration provides them with the potential for a differentiation advantage. This study builds theory that underpins that belief, and then tests the theory using a sample of large firms. While our findings do not support the relationship between backward vertical integration and low cost, they do provide strong support for arguments linking forward vertical integration with differentiation-based competitive advantage.

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    File URL: http://www.sciencedirect.com/science/article/B6VC4-3VWC46R-9/2/f00813fc8ac13db7073a3d809cbd7f7a
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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 24 (1996)
    Issue (Month): 6 (December)
    Pages: 715-726

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    Handle: RePEc:eee:jomega:v:24:y:1996:i:6:p:715-726

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    Related research

    Keywords: integration differentiation competitive advantage strategy;

    References

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    1. MacDonald, James M, 1985. "Market Exchange or Vertical Integration: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 327-31, May.
    2. A. W. Coats, 1995. "Comment," History of Political Economy, Duke University Press, vol. 27(5), pages 157-161, Supplemen.
    3. Greenhut, M L & Ohta, H, 1976. "Related Market Conditions and Interindustrial Mergers," American Economic Review, American Economic Association, vol. 66(3), pages 267-77, June.
    4. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
    5. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
    6. M. A. Adelman, 1955. "Concept and Statistical Measurement of Vertical Integration," NBER Chapters, in: Business Concentration and Price Policy, pages 281-330 National Bureau of Economic Research, Inc.
    7. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    8. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
    9. Perry, Martin K, 1978. "Related Market Conditions and Interindustrial Mergers: Comment," American Economic Review, American Economic Association, vol. 68(1), pages 221-24, March.
    10. Keith J. Crocker, 1983. "Vertical Integration and the Strategic use of Private Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 236-250, Spring.
    11. Perry, Martin K, 1978. "Vertical Integration: The Monopsony Case," American Economic Review, American Economic Association, vol. 68(4), pages 561-70, September.
    12. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
    13. Erin Anderson & David C. Schmittlein, 1984. "Integration of the Sales Force: An Empirical Examination," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 385-395, Autumn.
    14. McGee, John S & Bassett, Lowell R, 1976. "Vertical Integration Revisited," Journal of Law and Economics, University of Chicago Press, vol. 19(1), pages 17-38, April.
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    Cited by:
    1. Manuel Portugal Ferreira & Sungu Armagan & Dan Li, 2007. "Vertical Integration For Full Outsourcing: Growth And Internationalization Of A Portuguese Packaging Firm," Working Papers 4, globADVANTAGE, Polytechnic Institute of Leiria.

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