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Transaction costs, industry experience and make-or-buy decisions in the population of early U.S. auto firms

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  • Bigelow, Lyda S.
  • Argyres, Nicholas

Abstract

We study the determinants of make-or-buy decisions for engines made by every recorded U.S. auto firm during 1917-1933. Most make-or-buy studies testing predictions of transaction cost economics exclude smaller firms, even though their make-or-buy behavior might be different from large firms' due to capital constraints or other factors. We find that transaction cost effects on make-or-buy choices were nevertheless important at the population level. We also find that firm experience in the industry, as well as pre-entry experience, significantly affected make-buy choices. These experience effects may reflect the interaction of mechanisms emphasized in evolutionary and transaction cost theories.

Suggested Citation

  • Bigelow, Lyda S. & Argyres, Nicholas, 2008. "Transaction costs, industry experience and make-or-buy decisions in the population of early U.S. auto firms," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 791-807, June.
    • Handle: RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:791-807
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    3. Susan Helper & Abdul Munasib, 2022. "Economies of scope and relational contracts: Exploring global value chains in the automotive industry," BEA Working Papers 0195, Bureau of Economic Analysis.
    4. Lihong Qian & Rajshree Agarwal & Glenn Hoetker, 2012. "Configuration of Value Chain Activities: The Effect of Pre-Entry Capabilities, Transaction Hazards, and Industry Evolution on Decisions to Internalize," Organization Science, INFORMS, vol. 23(5), pages 1330-1349, October.
    5. Aseem Kaul, 2013. "Entrepreneurial Action, Unique Assets, and Appropriation Risk: Firms as a Means of Appropriating Profit from Capability Creation," Organization Science, INFORMS, vol. 24(6), pages 1765-1781, December.
    6. Bustamante, Carla V., 2019. "Strategic choices: Accelerated startups' outsourcing decisions," Journal of Business Research, Elsevier, vol. 105(C), pages 359-369.
    7. Najda-Janoszka, Marta, 2017. "Industry Transition - Challenges for Value Capture," MPRA Paper 81919, University Library of Munich, Germany.
    8. Nicholas Argyres & Lyda Bigelow & Jack A. Nickerson, 2015. "Dominant designs, innovation shocks, and the follower's dilemma," Strategic Management Journal, Wiley Blackwell, vol. 36(2), pages 216-234, February.
    9. Fernández Olmos, Marta, 2010. "The performance implications of "grow or buy" decisions in the wine industry," Food Policy, Elsevier, vol. 35(3), pages 256-264, June.
    10. Kira R. Fabrizio, 2012. "Institutions, Capabilities, and Contracts: Make or Buy in the Electric Utility Industry," Organization Science, INFORMS, vol. 23(5), pages 1264-1281, October.
    11. Alessandro Manello & Giuseppe G. Calabrese & Piercarlo Frigero, 2016. "Technical efficiency and productivity growth along the automotive value chain: evidence from Italy," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(2), pages 245-259.

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