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Empirical Studies of Vertical Integration: the Transaction Cost Orthodoxy

In this paper the empirical literature on transaction cost motivations of vertical integration strategies is critically reviewed. From the large number of empirical studies on this particular area, it emerges that, notwithstanding a) serious data and measurement limitations; b) the different attention given to the specific asset hypothesis with respect to the other hypotheses advanced by the theory; c) the unbalance between single industry and cross section studies; transaction cost theory is successful in explaining why firms may decide to internalise some stages of the manufacturing process. However, the growing body of empirical papers has not solved all problems, and more work is warranted. There are still some under researched topics which deserve a deeper investigation as well as a number of methodological problems which should be addressed.

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File URL: http://www.ceris.cnr.it/ceris/workingpaper/1999/wp03_99_Vannoni.pdf
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Paper provided by Institute for Economic Research on Firms and Growth - Moncalieri (TO) in its series CERIS Working Paper with number 199903.

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Length: 29 pages Keywords :Vertical Integration, Transaction Costs
Date of creation: Jun 1999
Date of revision:
Handle: RePEc:csc:cerisp:199903
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  1. Carlton, Dennis W, 1979. "Vertical Integration in Competitive Markets under Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 27(3), pages 189-209, March.
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  3. W. Coles, Jerilyn & Hesterly, William S., 1998. "The impact of firm-specific assets and the interaction of uncertainty: an examination of make or buy decisions in public and private hospitals," Journal of Economic Behavior & Organization, Elsevier, vol. 36(3), pages 383-409, August.
  4. Lyons, Bruce R., 1995. "Specific investment, economies of scale, and the make-or-buy decision: A test of transaction cost theory," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 431-443, May.
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  7. Levy, David T, 1985. "The Transactions Cost Approach to Vertical Integration: An Empirical Examination," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 438-45, August.
  8. Caves, Richard E., 1989. "International differences in industrial organization," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 21, pages 1225-1250 Elsevier.
  9. Krickx, Guido A., 1995. "Vertical integration in the computer mainframe industry: A transaction cost interpretation," Journal of Economic Behavior & Organization, Elsevier, vol. 26(1), pages 75-91, January.
  10. Davide Vannoni, 1994. "Perche' Le Matrici Intersettoriali Per Misurare L'Integrazione Verticale ?," CERIS Working Paper 199403, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
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  12. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
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  17. Lieberman, Marvin B, 1991. "Determinants of Vertical Integration: An Empirical Test," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 451-66, September.
  18. Caves, Richard E. & Bradburd, Ralph M., 1988. "The empirical determinants of vertical integration," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 265-279, April.
  19. Waterson, Michael, 1993. "Vertical Integration and Vertical Restraints," Oxford Review of Economic Policy, Oxford University Press, vol. 9(2), pages 41-57, Summer.
  20. Muris, Timothy J & Scheffman, David T & Spiller, Pablo T, 1992. "Strategy and Transaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 83-128, Spring.
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  23. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  24. MacDonald, James M, 1985. "Market Exchange or Vertical Integration: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 327-31, May.
  25. Weiss, Avi, 1992. "The Role of Firm-Specific Capital in Vertical Mergers," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 71-88, April.
  26. Ohanian, Nancy Kane, 1994. "Vertical Integration in the U.S. Pulp and Paper Industry, 1900-1940," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 202-07, February.
  27. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
  28. Weiss, Avi, 1994. "Vertical Mergers and Firm-Specific Physical Capital: Three Case Studies and Some Evidence on Timing," Journal of Industrial Economics, Wiley Blackwell, vol. 42(4), pages 395-417, December.
  29. Gary Cook, 1997. "A comparative analysis of vertical integration in the UK brewing and petrol industries," Journal of Economic Studies, Emerald Group Publishing, vol. 24(3), pages 152-166, September.
  30. Anderson, Erin, 1988. "Transaction costs as determinants of opportunism in integrated and independent sales forces," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 247-264, April.
  31. Francois Hennart, Jean, 1988. "Upstream vertical integration in the aluminum and tin industries : A comparative study of the choice between market and intrafirm coordination," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 281-299, April.
  32. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  33. Masten, Scott E. & Meehan, James Jr. & Snyder, Edward A., 1989. "Vertical integration in the U.S. auto industry : A note on the influence of transaction specific assets," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 265-273, October.
  34. Erin Anderson & David C. Schmittlein, 1984. "Integration of the Sales Force: An Empirical Examination," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 385-395, Autumn.
  35. Tapon, Francis, 1989. "A transaction costs analysis of innovations in the organization of pharmaceutical R & D," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 197-213, October.
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