Revisiting Vertical Scope: Capabilities, Integration and Profitability in the Mortgage Banking Industry
AbstractThis paper reconsiders the drivers and implications of vertical scope, in particular by fleshing out currently loose theorizing about capability-driven integration. As the transaction-cost based view cannot fully explain vertical channel choices in our large-scale US Mortgage Banking Database (especially "mixed" production / procurement structures), we consider the need for new theory, informed by qualitative and quantitative evidence. Using an analytical model as a tool, we answer the following questions: How do differential firm capabilities and their distribution affect the choice of vertical scope? What is the role of limits to replication? How do transaction costs, widely construed, catalyze and combine with capability distribution in shaping vertical scope in the firm and industry level of analysis? In particular, how is mean profitability and variation in profitability across firms in an industry related to capability distribution, replication and transaction costs? How do limits to growth affect vertical scope and profitability? The model builds on programming and activity analysis, and uses tools from computational general equilibrium theory to provide new theoretical insights on drivers of scope, as well as its profitability implications. The model's structure and mechanics are motivated from interviews with executives; references to the mortgage banking industry provide empirical illustrations. The paper concludes by reviewing some applications, such as how information technology affects value chain structure and profitability distribution, and what accounts for the growing concentration in servicing, despite declining economies of scale.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 01-16.
Date of creation: Apr 2001
Date of revision:
Contact details of provider:
Postal: 3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367
Web page: http://fic.wharton.upenn.edu/fic/
More information through EDIRC
Vertical Scope; Capabilities; Profitability;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-07-23 (All new papers)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.