Abstract

http://ssrn.com/abstract=2038834
 
 

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Vertical Scope, Turbulence and the Benefits of Commitment and Flexibility


Jörg Claussen


Copenhagen Business School - Department of Innovation and Organizational Economics

Tobias Kretschmer


Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Nils Stieglitz


Frankfurt School of Finance & Management; University of Southern Denmark - Strategic Organization Design Unit (SOD) - Department of Marketing & Management

January 2014

Forthcoming, Management Science

Abstract:     
We address the contested state of theory and the mixed empirical evidence on the relationship between turbulence and vertical scope by studying how turbulence affects the benefits of commitment from integrated development of components and the benefits of flexibility from sourcing components externally. We show that increasing turbulence first increases but then decreases the relative value of vertical integration. Moderate turbulence reduces the value of flexibility by making supplier selection more difficult and increases the value of commitment by mitigating the status quo bias of integrated structures. Both effects improve the value of integration. Higher levels of turbulence undermine the adaptive benefits of commitment, while having a less adverse effect on flexibility, making non-integration more attractive. We also show how complexity and uneven rates of turbulence moderate the non-monotonic relationship between turbulence and integration.

Number of Pages in PDF File: 32

Keywords: turbulence, vertical integration, commitment, flexibility, adaptation, NK model

JEL Classification: C15, L22, L24

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Date posted: April 12, 2012 ; Last revised: January 14, 2014

Suggested Citation

Claussen, Jörg and Kretschmer, Tobias and Stieglitz, Nils, Vertical Scope, Turbulence and the Benefits of Commitment and Flexibility (January 2014). Forthcoming, Management Science. Available at SSRN: http://ssrn.com/abstract=2038834 or http://dx.doi.org/10.2139/ssrn.2038834

Contact Information

Jörg Claussen (Contact Author)
Copenhagen Business School - Department of Innovation and Organizational Economics ( email )
Kilevej 14A
Frederiksberg, 2000
Denmark
Tobias Kretschmer
Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management) ( email )
Kaulbachstr. 45
Munich, 80539
Germany
London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
Houghton Street
London WC2A 2AE
United Kingdom
Nils Stieglitz
Frankfurt School of Finance & Management
Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany
University of Southern Denmark - Strategic Organization Design Unit (SOD) - Department of Marketing & Management ( email )
Campusvej 55
DK-5230 Odense M
Denmark
HOME PAGE: http://www.sdu.dk/sod
Feedback to SSRN


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