The Internalization of Advertising Services: An Inter-Industry Analysis

Horsky Sharon (), Michael Steven C. () and Silk Alvin J. ()
Additional contact information
Horsky Sharon: Graduate School of Business Administration, Bar-Ilan University
Michael Steven C.: College of Business, University of Illinois at Urbana-Champaign
Silk Alvin J.: Graduate School of Business Administration, Harvard University

Review of Marketing Science, 2012, vol. 10, issue 1, 35

Abstract: This study investigates the extent to which U.S. advertisers use in-house rather than independent advertising agencies and examines inter-industry variation in such internalization. Contrary to the widely-held impression that use of an in-house advertising agency is more the exception than the rule, we find that vertical integration of advertising services is much more widespread than has hitherto been appreciated. Drawing on concepts from research on scale economies and transaction costs, we develop a set of hypotheses about differences in the expected depth of internalization across industries. We test these hypotheses in cross sectional analyses of data covering 69 two digit SIC industries at two points in time, 1991 and 1999. In both years, approximately half of advertisers of all sizes operated an in-house agency. Across industries, we find that the likelihood of internalization of at least some advertising services decreases as the size of advertising outlays increase but increases as advertising intensity and technological intensity increase and is greater for “creative” industries.

Keywords: advertising agencies; in-house; vertical integration; make or buy (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/1546-5616.1142

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