Innovation, Modularity, and Vertical Deintegration: Evidence from the Early U.S. Auto Industry

Nicholas Argyres () and Lyda Bigelow ()
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Nicholas Argyres: Olin School of Business, Washington University, St. Louis, Missouri 63130
Lyda Bigelow: David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112

Organization Science, 2010, vol. 21, issue 4, 842-853

Abstract: Although vertical integration choices have been found to significantly affect firm performance, there has been little empirical study of how such choices are affected by the stage of industry evolution in which firms find themselves. We empirically investigate two possible impacts of increasing modularity on a firm's vertical integration choices. First, we hypothesize that increasing modularity is associated with vertical deintegration because of the high-level standardization of components that dominant designs tend to promote. Second, we posit that firms selling in higher market segments, because they are attempting to differentiate their products by incorporating unique components with less-modular interfaces with other components, will tend to be more vertically integrated than their lower-price rivals. We find evidence for both of these effects in data from the early U.S. auto industry.

Keywords: innovation; modularity; vertical integration (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (42)

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