Asset specificity and vertical integration
Subtitle: Williamson's Hypothesis reconsidered
By: Christian A. Ruzzier
Contributors: Harvard Business School
Series: Working paper / Harvard Business School -- 09-119; Working paper (Harvard Business School) -- 09-119
Publisher: Harvard Business School
Published: 2009
Place of publication: Boston]
Language: eng
Number of pages: 35
Description: A point repeatedly stressed by transaction cost economics is that the more specific the asset, the more likely is vertical integration to be optimal. In spite of the profusion of empirical papers supporting this prediction, recent surveys and casual observation suggest that higher levels of asset specificity need not always lead to vertical integration. The purpose of this paper is to uncover some of the factors driving firms to (sometimes) choose to remain separated, rather than integrate, in the presence of high specificity. Its main economic message is that in a world where outside options matter and investments are multidimensional, high levels of asset specificity can foster nonintegration: a low level of specificity provides the most misdirected incentives when transacting in a market (because the outside option of external trade becomes so tempting), thus making a stronger case for nonintegration when specificity is high.
Notes: "April 2009"--Publisher's website.

Includes bibliographical references.