Transaction Costs, Industry Experience and Make-or-Buy Decisions in the Population of Early U.S. Auto Firms

36 Pages Posted: 9 Jan 2008

See all articles by Lyda S. Bigelow

Lyda S. Bigelow

University of Utah - David Eccles School of Business

Nicholas S. Argyres

Boston University - School of Management

Abstract

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

Bigelow, Lyda S. and Argyres, Nicholas S., Transaction Costs, Industry Experience and Make-or-Buy Decisions in the Population of Early U.S. Auto Firms. Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1081906

Lyda S. Bigelow

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
801-585-3471 (Phone)

Nicholas S. Argyres (Contact Author)

Boston University - School of Management ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353-4152 (Phone)
(617) 353-5003 (Fax)

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