Empirical Studies of Vertical Integration: the Transaction Cost Orthodoxy

Davide Vannoni
(University of Turin, Ceris-CNR)

Abstract

In this paper the empirical literature on transaction cost motivations of vertical integration strategies is critically reviewed. From the large number of empirical studies on this particular area, it emerges that, notwithstanding a) serious data and measurement limitations; b) the different attention given to the specific asset hypothesis with respect to the other hypotheses advanced by the theory; c) the unbalance between single industry and cross section studies; transaction cost theory is successful in explaining why firms may decide to internalise some stages of the manufacturing process. However, the growing body of empirical papers has not solved all problems, and more work is warranted. There are still some under researched topics which deserve a deeper investigation as well as a number of methodological problems which should be addressed.

Key words: Vertical Integration, Transaction Costs.
JEL Classification: L10, L20