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Technical Dialog as an Incentive for Vertical Integration in the Semiconductor Industry

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  • Kirk Monteverde

    (St. Joseph's University, Philadelphia, Pennsylvania 19131)

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    Abstract

    A curious structural change observed in the American semiconductor industry (the appearance of a class of "fabless" firms) is examined within a general transaction costs framework. The framework is refined for empirical application with the introduction of the construct "unstructured technical dialog." The necessary level of this form of interpersonal communication between engineers in the design and fabrication stages of production is hypothesized to be positively related to the efficiency of a vertically integrated structure in which both stages are organized under a single hierarchy "Fablessness" (i.e., the organizational separation of the design and fabrication stages) is argued to be efficient for only those firms whose particular product portfolios have only a minimal requirement for such unstructured technical dialog. The hypothesis is tested upon a set of relatively young semiconductor firms. Support is found for the theoretically derived relationship even after controlling for rival explanations found in the literature.

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    File URL: http://dx.doi.org/10.1287/mnsc.41.10.1624
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 41 (1995)
    Issue (Month): 10 (October)
    Pages: 1624-1638

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    Handle: RePEc:inm:ormnsc:v:41:y:1995:i:10:p:1624-1638

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    Related research

    Keywords: transaction costs; Fabless semiconductor firms; technical dialog; vertical integration;

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    Cited by:
    1. Nicolai J. Foss, . ""Coase vs Hayek": Economic Organization in the Knowledge Economy," IVS/CBS Working Papers 2001-6, Department of Industrial Economics and Strategy, Copenhagen Business School.
    2. Mikkel Lucas Overby, 2005. "Partner Selection Criteria in Strategic Alliances When to Ally with Weak Partners," DRUID Working Papers 05-07, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    3. Wernerfelt, Birger, 2003. "Governance of Adjustments," Working papers 4412-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Gerwin, Donald, 2006. "Buyer-vendor relations for components: The extreme example of custom integrated circuits," Research Policy, Elsevier, vol. 35(5), pages 673-690, June.
    5. Wernerfelt, Birger, 2003. "Indirect Adjustment-Costs Under Alternative Coordination Regimes," Working papers 4336-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Gamal Atallah, 2002. "Production Technology, Information Technology, and Vertical Integration Under Asymmetric Information," Working Papers 0203EClassification-JEL: , University of Ottawa, Department of Economics.
    7. Michael, Steven C., 2007. "Transaction cost entrepreneurship," Journal of Business Venturing, Elsevier, vol. 22(3), pages 412-426, May.
    8. Schulze, Anja & Hoegl, Martin, 2008. "Organizational knowledge creation and the generation of new product ideas: A behavioral approach," Research Policy, Elsevier, vol. 37(10), pages 1742-1750, December.
    9. Nicolai J. Foss & Peter G. Klein, 2005. "The Theory of the Firm and Its Critics A Stocktaking and Assessment," DRUID Working Papers 05-03, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    10. Hansen, Thorsten, 2010. "Innovation and the International Firm Structure: Theory and Evidence from German Firm-Level Data," Discussion Papers in Economics 11464, University of Munich, Department of Economics.
    11. Martínez-Noya, Andrea & García-Canal, Esteban, 2011. "Technological capabilities and the decision to outsource/outsource offshore R&D services," International Business Review, Elsevier, vol. 20(3), pages 264-277, June.
    12. Margherita Balconi & Roberto Fontana, 2011. "Entry and innovation: an analysis of the fabless semiconductor business," Small Business Economics, Springer, vol. 37(1), pages 87-106, July.
    13. Jorge Tarziján M, 2003. "Revisando La Teoria De La Firma," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 6(2), pages 149-177.
    14. Pierre Azoulay, 2003. "Acquiring Knowledge Within and Across Firm Boundaries: Evidence from Clinical Development," NBER Working Papers 10083, National Bureau of Economic Research, Inc.
    15. Pierre Azoulay, 2004. "Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development," American Economic Review, American Economic Association, vol. 94(5), pages 1591-1612, December.

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