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Vertical integration and technology: theory and evidence

Acemoglu, D.; Aghion, P.; Griffith, R.; Zilibotti, F.; (2005) Vertical integration and technology: theory and evidence. (CEPR Discussion Papers DP5258). Centre for Economic Policy Research (CEPR): London, UK. Green open access

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This paper investigates the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both 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.

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://www.cepr.org/pubs/dps/DP5258.asp
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.ucl.ac.uk/id/eprint/18437

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