Logo
Munich Personal RePEc Archive

Firms' Procurement Decisions: Is Input Specificity Always an Argument for Vertical Integration?

Thiele, Veikko (2008): Firms' Procurement Decisions: Is Input Specificity Always an Argument for Vertical Integration?

This is the latest version of this item.

[thumbnail of MPRA_paper_8372.pdf]
Preview
PDF
MPRA_paper_8372.pdf

Download (268kB) | Preview

Abstract

The transaction cost theory predicts that firms are inclined to vertically integrate transactions in response to the specificity of their required inputs. Yet, reality proves that some firms engage in repeated transactions with external suppliers aimed at procuring highly specific inputs. To explain this phenomenon, this paper investigates a firm's make-or-buy decision in a context with relational (i.e. non-enforceable) contracts, and exposes how this decision is affected by the required input specificity. This paper demonstrates that a high degree of input specificity can lead to repeated market transactions being favored over vertical integration because demanding more specific inputs is shown to (i) impose lower costs on firms to maintain repeated market transactions founded on relational contracts; and (ii), facilitate the self-enforcement of these relational contracts.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.