The Internalization of Advertising Services: An Inter-IndustryAnalysis

Sharon Horsky (), Steven C. Michael and Alvin J. Silk ()
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Sharon Horsky: Bar-Ilan University, Graduate School of Business Administration,
Steven C. Michael: University of Illinois, Department of Business Administration
Alvin J. Silk: Harvard Business School

No 09-007, Harvard Business School Working Papers from Harvard Business School

Abstract: The common perception appears to be that vertical integration of advertising services is more the exception than the rule in the U.S. advertising industry. This study investigates the extent of such outsourcing and examines inter-industry variation in the use of in-house rather than independent advertising agencies by U.S. advertisers. While the vast majority of large advertisers employ outside agencies, it comes as a surprise to find that when advertisers of all sizes are considered, about half operate some form of in-house agency. Internalization of advertising services is much more widespread than has hitherto been appreciated and varies widely across industries. To explain this variation, we draw on concepts from research on scale economies and transaction costs to develop a set of hypotheses which we test in cross sectional analyses of data covering 69 two digit SIC industries at two points in time, 1991 and 1999. Across industries, we find that the likelihood of internalization of 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)
Pages: 43 pages
Date: 2008-07
New Economics Papers: this item is included in nep-mkt
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