Technical change,competition and vertical integration |
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| Authors: | Srinivasan Balakrishnan Birger Wernerfelt |
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| Institution: | 1. Graduate School of Management, University of California, Los Angeles, California, U.S.A.;2. J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois, U.S.A. |
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| Abstract: | This paper starts with a survey of the received theories of vertical integration. We then extend these theories by arguing that while uncertainty in general will make integration more effective, a particular type of uncertainty, the possibility of technological obsolescence, works the other way. After making this point at a conceptual level, we build a model to study how the frequency of technological change interacts with the intensity of competition to influence the optimal level of integration. The predictions of the model are then tested and very strongly supported by data from 93 industries. |
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