, Volume 23, Issue 4, pp 439-452
Date: 19 Dec 2006

Business groups and market failures: A focus on vertical and horizontal strategies

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Abstract

Drawing from transaction cost economics and strategic management, this paper develops a series of propositions that link market failure with corporate strategy. In doing so, the paper focuses on both vertical and horizontal strategies as strategic approaches that could be used to address different types of market failure. The significant contribution of the paper lies in its deconstruction of the various types of market failure and developing a theoretically grounded set of propositions that identifies appropriate corporate strategic responses that can be used to ameliorate the negative consequences of each type of failure. In doing so it also explores the evolution of business groups and the viability of strategic choices that groups are likely to make as they navigate the emerging market terrain.

An earlier version of this paper was presented at the APJM Special Issue Conference on Business Groups. We gratefully acknowledge the funding support of the Asia Academy of Management/APJM and the National University of Singapore for conference attendance. In addition, the lead author also received partial funding support from the US Department of Education. The opinions expressed are authors’ only. We also appreciate the feedback and guidance from the two anonymous reviewers, the session discussant, and the APJM Special Issue Editors Andrew Delios and Mike Peng.