Asia Pacific Journal of Management

, Volume 23, Issue 4, pp 439-452

First online:

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

  • Mingfang LiAffiliated withHohai UniversityDepartment of Management, California State University, Northridge Email author 
  • , Kannan RamaswamyAffiliated withDepartment of Global Business, Thunderbird: The Garvin School of International Management
  • , Barbara S. Pécherot PetittAffiliated withCERAM Sophia Antipolis

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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.


Business groups Diversification Vertical integration Market failures