Acemoglu, D.; Aghion, P.; Griffith, R.; Zilibotti, F.; (2004) Vertical integration and technology: theory and evidence. (IFS Working Papers W04/34). Institute for Fiscal Studies: London, UK.

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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 strategies, and with or without controlling 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.

Type:	Working / discussion paper
Title:	Vertical integration and technology: theory and evidence
Open access status:	An open access version is available from UCL Discovery
Publisher version:	http://dx.doi.org/10.1920/wp.ifs.2004.0434
Language:	English
Keywords:	JEL classification: L22, L23, L24, L60. Holdup, incomplete contracts, internal organisation of the firm, investment, R&D, technology, vertical integration
UCL classification:	UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI:	https://discovery-pp.ucl.ac.uk/id/eprint/2843

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