IDEAS home Printed from https://ideas.repec.org/a/mhr/jinste/urnsici0932-4569(201212)1684_658dwsuwf_2.0.tx_2-0.html
   My bibliography  Save this article

Divided we Stand, United we Fall: Asset Specificity and Vertical Integration Reconsidered

Author

Listed:
  • Christian A. Ruzzier

Abstract

Recent surveys and casual observation suggest that higher levels of asset specificity need not always lead to vertical integration, as traditionally stressed by transaction-cost economics. This paper uncovers some of the factors driving firms to (sometimes) choose to remain separated in the presence of high specificity. It shows that in a world where outside options matter and investments are multidimensional, high asset specificity can foster nonintegration: a low level of specificity provides the most misdirected incentives when transacting in a market (because the outside option of external trade becomes so tempting), thus making a stronger case for nonintegration.

Suggested Citation

  • Christian A. Ruzzier, 2012. "Divided we Stand, United we Fall: Asset Specificity and Vertical Integration Reconsidered," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(4), pages 658-686, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201212)168:4_658:dwsuwf_2.0.tx_2-0
    as

    Download full text from publisher

    File URL: https://www.mohrsiebeck.com/en/article/divided-we-stand-united-we-fall-asset-specificity-and-vertical-integration-reconsidered-101628093245612804469836
    Download Restriction: Fulltext access is included for subscribers to the printed version.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    2. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, September.
    3. Artz, Kendall W. & Brush, Thomas H., 2000. "Asset specificity, uncertainty and relational norms: an examination of coordination costs in collaborative strategic alliances," Journal of Economic Behavior & Organization, Elsevier, vol. 41(4), pages 337-362, April.
    4. George Baker & Robert Gibbons & Kevin J. Murphy, 2001. "Bringing the Market inside the Firm?," American Economic Review, American Economic Association, vol. 91(2), pages 212-218, May.
    5. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    6. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    7. Anderson, Shannon W. & Glenn, David & Sedatole, Karen L., 2000. "Sourcing parts of complex products: evidence on transactions costs, high-powered incentives and ex-post opportunism," Accounting, Organizations and Society, Elsevier, vol. 25(8), pages 723-749, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Geneviève Nguyen & Julien Brailly & François Purseigle, 2020. "Strategic outsourcing and precision agriculture: towards a silent reorganization of agricultural production in France ?," Post-Print hal-02942720, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christian A. Ruzzier, 2009. "Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered," Harvard Business School Working Papers 09-119, Harvard Business School.
    2. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    3. Christopher Hansman & Jonas Hjort & Gianmarco León-Ciliotta & Matthieu Teachout, 2020. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3570-3625.
    4. Haufler, Andreas & Schjelderup, Guttorm, 2004. "Tacit collusion and international commodity taxation," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 577-600, March.
    5. António Brandão & Joana Pinho & Hélder Vasconcelos, 2014. "Asymmetric Collusion with Growing Demand," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 429-472, December.
    6. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, September.
    7. Marcel Canoy & Patrick Rey & Eric van Damme, 2004. "Dominance and Monopolization," Chapters, in: Manfred Neumann & Jürgen Weigand (ed.), The International Handbook of Competition, chapter 7, Edward Elgar Publishing.
    8. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
    9. Bhattacharjea, Aditya & Sinha, Uday Bhanu, 2015. "Multi-market collusion with territorial allocation," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 42-50.
    10. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551, Elsevier.
    11. Furusawa, Taiji, 1999. "The negotiation of sustainable tariffs," Journal of International Economics, Elsevier, vol. 48(2), pages 321-345, August.
    12. Richard Damania & Per G. Fredriksson & Thomas Osang, 2005. "Polluters and Collective Action: Theory and Evidence," Southern Economic Journal, John Wiley & Sons, vol. 72(1), pages 167-185, July.
    13. Belleflamme, Paul & Bloch, Francis, 2008. "Sustainable collusion on separate markets," Economics Letters, Elsevier, vol. 99(2), pages 384-386, May.
    14. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    15. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2018. "Quantifying the coordinated effects of partial horizontal acquisitions," European Economic Review, Elsevier, vol. 110(C), pages 108-149.
    16. Nuno Limão, 2018. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 9, pages 257-281, World Scientific Publishing Co. Pte. Ltd..
    17. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1445-1488, December.
    18. Christian Balcells, 2022. "Determinants of firm boundaries and organizational performance: an empirical investigation of the Chilean truck market," Journal of Evolutionary Economics, Springer, vol. 32(2), pages 423-461, April.
    19. Hans‐Theo Normann, 2001. "Exchange Agreements Facilitate Collusion," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 113-125, May.
    20. Ursino Giovanni, 2015. "Supply Chain Control: A Theory of Vertical Integration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1831-1866, October.

    More about this item

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(201212)168:4_658:dwsuwf_2.0.tx_2-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Wolpert (email available below). General contact details of provider: https://www.mohrsiebeck.com/jite .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.