Transaction Costs as Determinants of Vertical Coordination in the U.S. Food Industries

Abstract

Vertical coordination is a more comprehensive concept than vertical integration, capturing market, contractual, and ownership coordination. Williamson suggests that transaction costs motivate the use of nonmarket arrangements to vertically coordinate production. This paper presents a vertical coordination index incorporating industry input‐output relationships and nonmarket arrangements. In an econometric analysis, the vertical coordination index is utilized to examine transaction cost effects on food industry vertical linkages. Empirical results support the hypothesis that transaction costs are a primary motivation to vertically coordinate via nonmarket arrangements. Results also suggest the vertical coordination index is more robust than traditional vertical integration measure.

Product Differentiation Strategy and Vertical Integration: An Application to the Doc Rioja Wine Industry

“…Evidence to support the hypothesis that vertical integration increases as concentration in the supplier market increases, even controlling for asset specificity, has been obtained in various prior studies (e.g., Levy 1985;Caves, Bradburd 1988;Leiblein et al 2002). In terms of food industries, Frank and Henderson (1992) and Bhuyan (2005) find supporting evidence for vertical integration in the U.S. food manufacturing industries. The small-numbers bargaining hypothesis is therefore as follows:…”

Determinants of Vertical Coordination in Buyer-Seller Relations: Exploratory Findings from a Developing Economy

“…The result from table 2 has supported the H1 and H3 while H2 was not suported.These findings indicate vertical coordination to be highly determined by willingness of partners to excersise contractual flexibility.Previous findings have suggested low to moderate asset specificity willhave positive impact on vertical coordination (Buvik & John, 2000;Rendefleisch & Heide, 1997), while others have found negative effect (Frank & Henderson, 1992). Ghoshal and Moran's (1996) found asset specificity to have positive effect in markets but negative in hierarchies/hybrids, while Buvik and John (2000) has found asset specificity to have positive effect on vertical coordination.…”

Testing Organizational Economics Theories of Vertical Integration

“…The governance choice is influenced by frequency, uncertainty (demand and technological), and asset specificity (physical, human, and site) in transaction costs theory (Williamson, 1979). Clevenger and Campbell (1977) Leontief (1951) Martin (1986) Davies and Morris (1995) Lindstrom and Rozell (1993) Stiles (1992) Frank and Henderson (1992) MacDonald (1985) Hallwood (1991) Maddigan (1981) Harrison et al (1990) Maddigan andZaima (1985) (4) Microanalytic (TCE, Measurement, Agency) Anderson (1985) Joskow (1985) Pirrong (1993) Anderson (1988) Joskow (1987) Pisano (1990) Anderson and Coughlan (1987) Joskow (1988b) Poppo and Zenger (1995) Anderson and Schmittlein (1984) Klein (1989) Poppo and Zenger (1998) Argyres (1996) Klein, Frazier, and Roth (1990) Provan andSkinner (1989) Azoulay (2004) Krickx ( Globerman and Schwindt (1986) Masten and Snyder (1993) Walker and Weber (1984) Gonza´lez-Diaz, Arrunada, and Fernandez (2000) Monteverde (1995) Walker and Weber (1987) Goodstein et al (1996) Monteverde and Teece (1982) Whyte (1994) Hall and Rao (1994) Mosakowski ( Nickerson and Silverman (2003a, 2003b) John and Weitz (1988 Ohanian (1994) The positive agency theory literature (Alchian & Demsetz, 1972;Eisenhardt, 1989) emphasizes the role of measurement uncertainty influencing governance choice. As different individuals organize activities into team production, monitoring of coordinated activities becomes a central problem.…”