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Vertical Strategies and Market Structure: A Systematic Risk Analysis

Author

Listed:
  • Sayan Chatterjee

    (The Weatherhead School of Management, Department of Marketing and Policy, Case Western Reserve University, Cleveland, Ohio 44106)

  • Michael Lubatkin

    (368 Fairfield Road/Box U-41B, University of Connecticut, Storrs, Connecticut 06269-2041 and Groupe ESC Lyon, Lyon, France)

  • Timothy Schoenecker

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

Abstract

This study examines the implications of vertical mergers on the risk characteristic of the merging firms. Specifically, the study focuses on three structural characteristics of the acquiring and acquired firm's market to explain the change in the systematic or environmental risk of the acquiring firm. These structural factors are the level of competition in the acquiring firm's industry, the level of competition in the acquired firm's industry, and the growth rate of the acquiring firm's industry. The findings suggest that vertical mergers are effective at reducing systematic risk particularly when the acquiring firm competes in a concentrated market. Further, this result appears to be stable across life cycle stages.

Suggested Citation

  • Sayan Chatterjee & Michael Lubatkin & Timothy Schoenecker, 1992. "Vertical Strategies and Market Structure: A Systematic Risk Analysis," Organization Science, INFORMS, vol. 3(1), pages 138-156, February.
    • Handle: RePEc:inm:ororsc:v:3:y:1992:i:1:p:138-156
    DOI: 10.1287/orsc.3.1.138
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    Citations

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    Cited by:

    1. Micola, Augusto Rupérez & Banal-Estañol, Albert & Bunn, Derek W., 2008. "Incentives and coordination in vertically related energy markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 381-393, August.
    2. Dzhagityan, Eduard, 2012. "The effect of ex post risks on post-M&A performance efficiency," MPRA Paper 63147, University Library of Munich, Germany.
    3. Kaouthar Lajili & Joseph T. Mahoney, 2006. "Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 573-586.
    4. Chipalkatti Niranjan & Koch Bruce & Buchanan Bonnie G. & Doh Jonathan, 2013. "Enhancing Value in IT Services Offshoring: Real Options Matter," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 8(1), pages 123-147, December.
    5. Joshua D. Shackman, 2007. "Corporate diversification, vertical integration, and internal capital markets: A cross-country study," Management International Review, Springer, vol. 47(4), pages 479-504, October.
    6. Schön, Benjamin & Pyka, Andreas, 2013. "The success factors of technology-sourcing through mergers & acquisitions: An intuitive meta-analysis," FZID Discussion Papers 78-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    7. Gautam Ray & Dazhong Wu & Prabhudev Konana, 2009. "Competitive Environment and the Relationship Between IT and Vertical Integration," Information Systems Research, INFORMS, vol. 20(4), pages 585-603, December.
    8. Lajili, Kaouthar & Mahoney, Joseph T., 2005. "Revisiting Agency and Transaction Costs Theory Predictions on Vertical Financial Ownership and Contracting: Electronic Integration as an Organizational Form Choice," Working Papers 05-0106, University of Illinois at Urbana-Champaign, College of Business.

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