Transaction Costs, Industry Experience and Make-or-Buy Decisions in the Population of Early U.S. Auto Firms
36 Pages Posted: 9 Jan 2008
We study the determinants of make-or-buy decisions for engines made by every recorded U.S. auto firm during 1917-1933. Most make-or-buy studies testing predictions of transaction cost economics exclude smaller firms, even though their make-or-buy behavior might be different from large firms' due to capital constraints or other factors. We find that transaction cost effects on make-or-buy choices were nevertheless important at the population level. We also find that firm experience in the industry, as well as pre-entry experience, significantly affected make-buy choices. These experience effects may reflect the interaction of mechanisms emphasized in evolutionary and transaction cost theories.
Keywords: transaction costs, vertical integration, capabilities
JEL Classification: L22, L62, O32
Suggested Citation: Suggested Citation