Can trust induce vertical integration? An experimental study of buyer-seller exchanges with distinct competencies and specific investments

Luiz F. Mesquita, Maria Sylvia M. Saes, Sérgio G. Lazzarini, Leandro S. Pongeluppe

Research output: Contribution to journalArticlepeer-review

Abstract

Research has debated the merits of transaction cost and competence-based explanations of make-versus-buy choices. We advance this discussion by arguing that trust not only promotes markets by reducing the hazards of specific investments (as emphasized by previous work), but alternatively triggers vertical integration when parties would like to internalize distinctive competencies and at the same time avoid hierarchical failure. Our experimental results where players choose between markets and hierarchies lend support for this dual role of trust in boundary decisions.

Original languageEnglish (US)
Pages (from-to)778-798
Number of pages21
JournalIndustrial and Corporate Change
Volume30
Issue number3
DOIs
StatePublished - Jun 1 2021

ASJC Scopus subject areas

  • Economics and Econometrics

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