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The Evolution of the Vertically Integrated Firm: A Transaction Cost Analysis

  • Chapter
Applied Industrial Organization

Abstract

This paper examines the evolution of the vertically integrated firm in terms of coordination economies. First, we develop the concept of coordination efficiency, which is defined by the sum of transaction, risk and set-up costs of the coordination design. The transaction and risk costs are positively related to uncertainty, transaction specificity, transaction frequency, and the potential volume of transactions. The set-up costs of the coordination design are determined by the complexity, as well as incentive and cognitive compatibility of the coordination design. Second, this concept is applied to the question of the evolution of the vertically integrated firm. We show that the vertically integrated firm evolves the more (less) likely, the more asymmetric (symmetric) the interfirm transactions are Finally, this result was compared with the Williamsonian governance structure approach which overestimates the likelihood of the evolution of the vertically integrated firm, because Williamson does not differentiate between symmetric and asymmetric specific transactions.

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Author information

Authors and Affiliations

  1. Institute of Business Economics, University of Vienna, Vienna, Austria

    Josef Windsperger

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  1. Josef Windsperger
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Editors and Affiliations

  1. Institute of Economic Research, University of Linz, Vienna, Austria

    Karl Aiginger  & Jorg Finsinger  & 

  2. Business Economics Institute, University of Vienna, Vienna, Austria

    Karl Aiginger  & Jorg Finsinger  & 

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© 1994 Springer Science+Business Media Dordrecht

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Windsperger, J. (1994). The Evolution of the Vertically Integrated Firm: A Transaction Cost Analysis. In: Aiginger, K., Finsinger, J. (eds) Applied Industrial Organization. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-6395-0_9

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  • DOI: https://doi.org/10.1007/978-94-017-6395-0_9

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-90-481-4452-5

  • Online ISBN: 978-94-017-6395-0

  • eBook Packages: Springer Book Archive

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