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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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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tommaso Ciarli & Riccardo Leoncini & Sandro Montresor & Marco Valente, 2008. "Technological change and the vertical organization of industries," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 367-387, August. [Downloadable!] (restricted)
  2. Barbara Pfeffer, 2008. "FDI and FPI - Strategic Complements?," MAGKS Papers on Economics 200812, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
  3. Laura Abramovsky & Rachel Griffith, 2009. "ICT, corporate restructuring and productivity," IFS Working Papers W09/10, Institute for Fiscal Studies. [Downloadable!]
  4. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009. [Downloadable!]
  5. G. Rossini & L. Vici, 2007. "Vertical integration, disintegration and ability to export," Working Papers 592, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  6. Macchiavello, Rocco, 2007. "Financial Constraints and the Costs and Benefits of Vertical Integration," CEPR Discussion Papers 6104, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Michele Moretto & Gianpaolo Rossini, 2008. "Vertical Integration and Operational Flexibility," Working Papers 2008.37, Fondazione Eni Enrico Mattei. [Downloadable!]
  8. Filippo Vergara Caffarelli, 2006. "Merge and Compete. Strategic incentives for vertical integration," Temi di discussione (Economic working papers) 608, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  9. Oriol Carbonell-Nicolau & Diego Comin, 2005. "Testing Out Contractual Incompleteness: Evidence from Soccer," Departmental Working Papers 200501, Rutgers University, Department of Economics. [Downloadable!]
    Other versions:
  10. R. Antonietti & D. Antonioli, 2007. "Production offshoring and the skill composition of Italian manufacturing firms A quasi-experimental analysis," Working Papers 593, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
    Other versions:
  11. Alla Lileeva & Johannes Van Biesebroeck, 2007. "Outsourcing when Investments are Specific and Complementary," Working Papers tecipa-287, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  12. Philippe Aghion & Rachel Griffith & Peter Howitt, 2006. "The U-shaped relationship between vertical integration and competition: theory and evidence," IFS Working Papers W06/12, Institute for Fiscal Studies. [Downloadable!]
  13. Giulio Cainelli & Donato Iacobucci, 2006. "The Role of Agglomeration and Technology in Shaping Firm's Strategy and Organization," ERSA conference papers ersa06p286, European Regional Science Association. [Downloadable!]
    Other versions:
  14. Philippe Aghion & Rachel Griffith & Peter Howitt, 2006. "Vertical Integration and Competition," American Economic Review, American Economic Association, vol. 96(2), pages 97-102, May. [Downloadable!]
  15. Juan Carluccio & Thibault Fally, 2008. "Global sourcing under imperfect capital markets," PSE Working Papers 2008-69, PSE (Ecole normale supérieure). [Downloadable!]
  16. Rocco Macchiavello, 2008. "Contractual Institutions, Financial Development and Vertical Integration: Theory and Evidence," Economics Series Working Papers 392, University of Oxford, Department of Economics. [Downloadable!]
  17. Daron Acemoglu & Simon Johnson & Todd Mitton, 2005. "Determinants of Vertical Integration: Finance, Contracts, and Regulation," NBER Working Papers 11424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Acemoglu, Daron & Aghion, Philippe & Griffith, Rachel & Zilibotti, Fabrizio, 2005. "Vertical Integration and Technology: Theory and Evidence," CEPR Discussion Papers 5258, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  19. Christian A. Ruzzier, 2009. "Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered," Harvard Business School Working Papers 09-119, Harvard Business School. [Downloadable!]
  20. M. Moretto & G. Rossini, 2008. "Vertical Integration and Operational Flexibility," Working Papers 631, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  21. Macchiavello, Rocco, 2006. "Contractual Institutions, Financial Development and Vertical Integration: Theory and Evidence," CEPR Discussion Papers 5903, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion? Second Version," PIER Working Paper Archive 05-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Mar 2005. [Downloadable!]
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