Vertical Integration and Technology: Theory and Evidence

Daron Acemoglu, Philippe Aghion, Rachel Griffith () and Fabrizio Zilibotti ()

No 5258, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both 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.

Keywords: hold-up; incomplete contracts; internal organisation of the firm; investment; R&D; residual rights of control; technology; UK manufacturing; vertical integration (search for similar items in EconPapers)
JEL-codes: L22 L23 L24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ict, nep-ino, nep-mic and nep-tid
Date: 2005-09
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Related works:
Working Paper: Vertical integration and technology: theory and evidence (2004)
Working Paper: Vertical Integration and Technology: Theory and Evidence (2004)
Working Paper: Vertical Integration and Technology: Theory and Evidence (2007)
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