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EVIDENCE ON THE ROLE OF FIRM CAPABILITIES IN VERTICAL INTEGRATION DECISIONS

EVIDENCE ON THE ROLE OF FIRM CAPABILITIES IN VERTICAL INTEGRATION DECISIONS The capabilities approach to the firm postulates that firms vertically integrate activities for which they possess capabilities that are superior to potential suppliers'. The comparative contracting approach, in contrast, emphasizes high asset specificity as leading to vertical integration. This paper compares the two sets of explanations on make‐or‐buy decisions made by a large firm. It finds that in some cases asset specificity alone is determinant, but in others capabilities and combinations of considerations are explanatory. Analysis of the data also provides insights about the mechanisms through which capabilities operate. In particular, the similarity of the knowledge bases associated with various activities, and the time required to acquire knowledge, appear as important indicators of the importance of capabilities to vertical integration decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Strategic Management Journal Wiley

EVIDENCE ON THE ROLE OF FIRM CAPABILITIES IN VERTICAL INTEGRATION DECISIONS

Strategic Management Journal , Volume 17 (2) – Feb 1, 1996

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References (35)

Publisher
Wiley
Copyright
Copyright © 1996 John Wiley & Sons, Ltd.
ISSN
0143-2095
eISSN
1097-0266
DOI
10.1002/(SICI)1097-0266(199602)17:2<129::AID-SMJ798>3.0.CO;2-H
Publisher site
See Article on Publisher Site

Abstract

The capabilities approach to the firm postulates that firms vertically integrate activities for which they possess capabilities that are superior to potential suppliers'. The comparative contracting approach, in contrast, emphasizes high asset specificity as leading to vertical integration. This paper compares the two sets of explanations on make‐or‐buy decisions made by a large firm. It finds that in some cases asset specificity alone is determinant, but in others capabilities and combinations of considerations are explanatory. Analysis of the data also provides insights about the mechanisms through which capabilities operate. In particular, the similarity of the knowledge bases associated with various activities, and the time required to acquire knowledge, appear as important indicators of the importance of capabilities to vertical integration decisions.

Journal

Strategic Management JournalWiley

Published: Feb 1, 1996

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