Vertical integration and technology: theory and evidence

Daron Acemoglu, Philippe Aghion, Rachel Griffith () and Fabrizio Zilibotti ()
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Philippe Aghion: Institute for Fiscal Studies and Harvard University

No W04/34, IFS Working Papers from Institute for Fiscal Studies

Abstract: This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry us more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of 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 straegies, and with or without contraolling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives.

Keywords: holdup; incomplete contracts; internal organisation fo the firm; investment; R&D; technology; vertical integration (search for similar items in EconPapers)
JEL-codes: L22 L23 L24 L60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mic
Date: 2004-12
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http://www.ifs.org.uk/wps/wp0434.pdf (application/pdf)

Related works:
Working Paper: Vertical Integration and Technology: Theory and Evidence (2004)
Working Paper: Vertical Integration and Technology: Theory and Evidence (2007)
Working Paper: Vertical Integration and Technology: Theory and Evidence (2005)
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