Does Ownership Affect the Variability of the Production Process? Evidence from International Courier Services

Abstract:     
While transaction-cost economics has considered the effect of make-or-buy decisions on expected product performance, research has not explored the effect of make-or-buy decisions on variability of product performance (i.e., reliability). We argue that firms that differentiate their products by pursuing low variability face exchange attributes for which outsourcing the corresponding performs worse than vertical integration. Nonparametric density estimation and parametric tests of variance from Japanese International Courier and Small Packages services industry data provide general support for our hypothesis.

Keywords: Outsourcing, vertical integration, reliability, quality

JEL Classifications: C14, L10, L14, L93

Working Paper Series