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Vertical Integration and Technology: Theory and Evidence

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Author Info
Daron Acemoglu
Philippe Aghion
Rachel Griffith
Fabrizio Zilibotti

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Abstract

This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry is more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of 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. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10997.

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Date of creation: Dec 2004
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Handle: RePEc:nbr:nberwo:10997

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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
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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