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Vertical Integration and Technology: Theory and Evidence

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Author Info
Acemoglu, Daron
Aghion, Philippe
Griffith, Rachel
Zilibotti, Fabrizio

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Abstract

This paper investigates the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both these effects are stronger when the supplying industry accounts for a large fraction of the producer's costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm and industry-level characteristics.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5258.

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Date of creation: Sep 2005
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Handle: RePEc:cpr:ceprdp:5258

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Keywords: hold-up incomplete contracts internal organisation of the firm investment R&D residual rights of control technology UK manufacturing vertical integration

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Find related papers by JEL classification:
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  23. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2004. "Vertical integration and technology: theory and evidence," IFS Working Papers W04/34, Institute for Fiscal Studies. [Downloadable!]
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  24. Tasneem Chipty, 2001. "Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry," American Economic Review, American Economic Association, vol. 91(3), pages 428-453, June. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tommaso Ciarli & Riccardo Leoncini & Sandro Montresor & Marco Valente, 2008. "Technological change and the vertical organization of industries," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 367-387, August. [Downloadable!] (restricted)
  2. Oriol Carbonell-Nicolau & Diego Comin, 2005. "Testing out Contractual Incompleteness: Evidence from Soccer," NBER Working Papers 11110, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Incentives: Theory and Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  4. G. Rossini & L. Vici, 2007. "Vertical integration, disintegration and ability to export," Working Papers 592, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
  5. Daron Acemoglu & Simon Johnson & Todd Mitton, 2005. "Determinants of Vertical Integration: Finance, Contracts, and Regulation," NBER Working Papers 11424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Acemoglu, Daron & Aghion, Philippe & Griffith, Rachel & Zilibotti, Fabrizio, 2005. "Vertical Integration and Technology: Theory and Evidence," CEPR Discussion Papers 5258, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. R. Antonietti & D. Antonioli, 2007. "Production offshoring and the skill composition of Italian manufacturing firms A quasi-experimental analysis," Working Papers 593, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
    Other versions:
  8. Alla Lileeva & Johannes Van Biesebroeck, 2007. "Outsourcing when Investments are Specific and Complementary," Working Papers tecipa-287, University of Toronto, Department of Economics. [Downloadable!]
  9. Philippe Aghion & Rachel Griffith & Peter Howitt, 2006. "The U-shaped relationship between vertical integration and competition: theory and evidence," IFS Working Papers W06/12, Institute for Fiscal Studies. [Downloadable!]
  10. Giulio Cainelli & Donato Iacobucci, 2006. "The Role of Agglomeration and Technology in Shaping Firm's Strategy and Organization," ERSA conference papers ersa06p286, European Regional Science Association. [Downloadable!]
  11. Philippe Aghion & Rachel Griffith & Peter Howitt, 2006. "Vertical Integration and Competition," American Economic Review, American Economic Association, vol. 96(2), pages 97-102, May.
  12. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion? Second Version," PIER Working Paper Archive 05-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Mar 2005. [Downloadable!]
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