The Make-or-Buy Decision Revisited

Peter G. Klein () and João Fernando Rossi Mazzoni ()
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Peter G. Klein: Baylor University
João Fernando Rossi Mazzoni: Baylor University

Chapter 19 in Handbook of New Institutional Economics, 2025, pp 447-474 from Springer

Abstract: Abstract This chapter builds on Klein (The make-or-buy decision: Lessons from empirical studies. In Handbook of new institutional economics, pp. 435–464, 2005) to provide an updated literature review on make-or-buy decisions incorporating the most recent theories, methods, and data sources used and considering newer phenomena related to vertical boundaries, as well as sketching out some future directions of this literature. After summarizing the most common explanations for make-versus-buy, we discuss methodological challenges including data, measurement, and estimation techniques and then review empirical findings on component procurement, the use of contracts and contractual design, and newer organizational forms such as platforms. We then discuss ongoing challenges and implications for future work. While the literature on make-or-buy decisions has grown and diversified over the last 20 years, the core insights of the transaction cost approach and its basic explanatory power in helping us make sense of vertical boundaries remain the same.

Keywords: Vertical integration; Outsourcing; Transaction costs; Asset specificity; Contracting; Platforms; Hybrids; Governance (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-50810-3_19

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DOI: 10.1007/978-3-031-50810-3_19

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