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Why Do Firms Own Production Chains?

Author

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  • Enghin Atalay
  • Ali Hortacsu
  • Chad Syverson

Abstract

We use broad-based yet detailed data from the economy's goods-producing sectors to investigate firms' ownership of production chains. It does not appear that vertical ownership is primarily used to facilitate transfers of goods along the production chain, as is often presumed: Roughly one-half of upstream plants report no shipments to their firms' downstream units. We propose an alternative explanation for vertical ownership, namely that it promotes efficient intra-firm transfers of intangible inputs. We show evidence consistent with this hypothesis, including the fact that upon a change of ownership, an acquired plant begins to resemble the acquiring firm along multiple dimensions.

Suggested Citation

  • Enghin Atalay & Ali Hortacsu & Chad Syverson, 2012. "Why Do Firms Own Production Chains?," NBER Working Papers 18020, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18020
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    References listed on IDEAS

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    Cited by:

    1. Jörn Kleinert & Julien Martin & Farid Toubal, 2015. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 134-159, October.
    2. Cheng, Wenya & Morrow, John & Tacharoen, Kitjawat, 2012. "Productivity as if space mattered: an application to factor markets across China," LSE Research Online Documents on Economics 48930, London School of Economics and Political Science, LSE Library.
    3. Andrew B. Bernard & Emily J. Blanchard & Ilke Van Beveren & Hylke Y. Vandenbussche, 2012. "Carry-Along Trade," NBER Working Papers 18246, National Bureau of Economic Research, Inc.
    4. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    5. Boehm, Johannes, 2015. "The impact of contract enforcement costs on outsourcing and aggregate productivity," LSE Research Online Documents on Economics 86281, London School of Economics and Political Science, LSE Library.
    6. Gaigne, Carl & Latouche, Karine & Turolla, Stephane, 2012. "Vertical Ownership and Trade: Firm-level evidence from France," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125020, Agricultural and Applied Economics Association.
    7. Enghin Atalay, 2014. "Materials Prices And Productivity," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 575-611, June.
    8. Nathan H. Miller & Matthew Osborne, 2014. "Spatial differentiation and price discrimination in the cement industry: evidence from a structural model," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 221-247, June.
    9. Patrick Legros & Andrew F. Newman, 2014. "Contracts, Ownership, and Industrial Organization: Past and Future," Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 82-117.
    10. Troy D. Smith, 2015. "Private Equity Investment in India: Efficiency vs Expansion," Discussion Papers 15-011, Stanford Institute for Economic Policy Research.
    11. Ryan Monarch & Jooyoun Park & Jagadeesh Sivadasan, 2013. "Gains from Offshoring? Evidence from U.S. Microdata," Working Papers 13-20, Center for Economic Studies, U.S. Census Bureau.
    12. Machikita, Tomohiro & Ueki, Yasushi, 2012. "Impact of Production Linkages on Industrial Upgrading in ASEAN, the People’s Republic of China, and India: Organizational Evidence of a Global Supply Chain," ADBI Working Papers 399, Asian Development Bank Institute.
    13. Giuseppe Berlingieri, 2013. "Outsourcing and the Rise in Services," CEP Discussion Papers dp1199, Centre for Economic Performance, LSE.
    14. Andrew F. Newman & Patrick Legros, 2011. "Incomplete Contracts and Industrial Organization: A Survey," Boston University - Department of Economics - Working Papers Series WP2011-036, Boston University - Department of Economics.
    15. Galdon-Sanchez, Jose Enrique & Gil, Ricard & Bayo-Moriones, Alberto, 2015. "Outsourcing of peripheral services: Evidence from Spanish manufacturing plant-level data," European Economic Review, Elsevier, vol. 78(C), pages 328-344.
    16. Aghion, Philippe & Dewatripont, Mathias & Legros, Patrick & Zingales, Luigi (ed.), 2016. "The Impact of Incomplete Contracts on Economics," OUP Catalogue, Oxford University Press, number 9780199826216.
    17. Tomohiro MACHIKITA & Yasushi UEKI, 2011. "Impacts of Incoming Knowledge on Product Innovation: Technology Transfer in Auto-related Industries in Developing Economies," Working Papers DP-2011-08, Economic Research Institute for ASEAN and East Asia (ERIA).
    18. Carlo Altomonte & Armando Rungi, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Working Papers 2013.33, Fondazione Eni Enrico Mattei.
    19. Sebastian Stumpner, 2014. "Trade and the Geographic Spread of the Great Recession," 2014 Meeting Papers 638, Society for Economic Dynamics.
    20. Basco, Sergi & Mestieri, Marti, 2013. "Mergers along the Global Supply Chain: Information Technologies and Routineness," TSE Working Papers 13-428, Toulouse School of Economics (TSE), revised Nov 2013.
    21. Bayo-Moriones, Alberto & Galdon-Sanchez, Jose Enrique & Gil, Ricard, 2013. "'Make-or-Buy' of Peripheral Services in Manufacturing: Evidence from Spanish Plant-Level Data," IZA Discussion Papers 7138, Institute for the Study of Labor (IZA).
    22. Esther Kalkbrenner, 2010. "Acquired versus Non-Acquired Subsidiaries - Which Entry Mode do Parent Firms Prefer," NRN working papers 2010-22, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    23. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2017. "Domestic gains from offshoring? Evidence from TAA-linked U.S. microdata," Journal of International Economics, Elsevier, vol. 105(C), pages 150-173.
    24. Bivin, David, 2013. "Production chains and aggregate output volatility," International Journal of Production Economics, Elsevier, vol. 145(2), pages 807-816.
    25. repec:eee:respol:v:47:y:2018:i:2:p:428-439 is not listed on IDEAS

    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General
    • 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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