Why Do Firms Own Production Chains?

60 Pages Posted: 28 Apr 2012 Last revised: 28 Mar 2022

See all articles by Enghin Atalay

Enghin Atalay

University of Chicago - Department of Economics

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

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Date Written: April 2012

Abstract

We use broad-based yet detailed data from the economy's goods-producing sectors to investigate firms' ownership of production chains. It does not appear that vertical ownership is primarily used to facilitate transfers of goods along the production chain, as is often presumed: Roughly one-half of upstream plants report no shipments to their firms' downstream units. We propose an alternative explanation for vertical ownership, namely that it promotes efficient intra-firm transfers of intangible inputs. We show evidence consistent with this hypothesis, including the fact that upon a change of ownership, an acquired plant begins to resemble the acquiring firm along multiple dimensions.

Suggested Citation

Atalay, Enghin and Hortacsu, Ali and Syverson, Chad, Why Do Firms Own Production Chains? (April 2012). NBER Working Paper No. w18020, Available at SSRN: https://ssrn.com/abstract=2047271

Enghin Atalay (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Ali Hortacsu

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Chad Syverson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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