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Linking alternative theories of the firm – a first empirical application to the liquefied natural gas industry

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  • RUESTER, SOPHIA
  • NEUMANN, ANNE

Abstract

This paper provides an empirical analysis linking two theories of firms' strategic behavior. We analyze corporate strategies in the emerging global market for liquefied natural gas. First, following Porter, we identify three strategic target market positions: chain optimization, flexibility strategy, and national oil companies (NOCs). Each target market position is supported by an underlying resource profile. Second, following transaction cost economics, we hypothesize that specific investments under uncertainty provide incentives to integrate vertically. We test these economic relationships empirically applying a two-stage procedure. Estimation results show that the three strategic choices of target market position, resource profile, and organizational structure are interrelated. We show that NOCs rely on less idiosyncratic assets than companies following a flexibility strategy and companies following a flexibility strategy rely on less idiosyncratic assets than chain optimizers. An increase in hold-up potential results in a higher probability of a firm organizing transactions within its own hierarchy.

Suggested Citation

  • Ruester, Sophia & Neumann, Anne, 2009. "Linking alternative theories of the firm – a first empirical application to the liquefied natural gas industry," Journal of Institutional Economics, Cambridge University Press, vol. 5(1), pages 47-64, April.
  • Handle: RePEc:cup:jinsec:v:5:y:2009:i:01:p:47-64_00
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    Cited by:

    1. Jean-Michel Glachant & Michelle Hallack & Miguel Vazquez, 2013. "Building Competitive Gas Markets in the EU," Books, Edward Elgar Publishing, number 15263.
    2. Anne Neumann & Karsten Neuhoff, 2011. "Facilitating Low-Carbon Investments: Lessons from Natural Gas," Discussion Papers of DIW Berlin 1154, DIW Berlin, German Institute for Economic Research.
    3. Anne Neumann & Sophia Rüster & Christian von Hirschhausen, 2015. "Long-Term Contracts in the Natural Gas Industry: Literature Survey and Data on 426 Contracts (1965-2014)," Data Documentation 77, DIW Berlin, German Institute for Economic Research.
    4. John, George & Reve, Torger, 2010. "Transaction Cost Analysis in Marketing: Looking Back, Moving Forward," Journal of Retailing, Elsevier, vol. 86(3), pages 248-256.
    5. Roberto Cardinale, 2023. "Liberalization and the volatility of gas prices: Exploring their relation in times of abundance and scarcity," Competition and Regulation in Network Industries, , vol. 24(2-3), pages 72-96, June.

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