Coordination in Vertical Relationships: The (Un) Importance of Information Flows
41 Pages Posted: 30 Jun 2008
Date Written: February 2008
We argue that common ground - knowledge that is shared and known to be shared - can reduce the need for information flows in coordinating specialized activities within the firm, compared to between firms. Consistent with our predictions, in a sample of procurement relationships in the automobile industry, we find that the relationships within the firm involve a lower level of information sharing compared to market relationships once we statistically ensure comparability of transactions within and between firms. This does not appear to be sub-optimal for performance. Tacit coordination based on common ground may therefore be a distinctive feature of how the division of labour is managed within the firm.
Keywords: Coordination, firm boundaries, knowledge
JEL Classification: L14, D23
Suggested Citation: Suggested Citation