American Economic Review: Vol. 104 No. 4 (April 2014)


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Vertical Integration and Input Flows

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Atalay, Enghin, Ali Hortaçsu, and Chad Syverson. 2014. "Vertical Integration and Input Flows." American Economic Review, 104(4): 1120-48.

DOI: 10.1257/aer.104.4.1120


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 establishments report no shipments to downstream establishments within the same firm. We propose an alternative explanation for vertical ownership, namely that it promotes efficient intrafirm transfers of intangible inputs. We show evidence consistent with this hypothesis, including the fact that, after a change of ownership, an acquired establishment begins to resemble the acquiring firm along multiple dimensions.

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Atalay, Enghin (U Chicago)
Hortaçsu, Ali (U Chicago)
Syverson, Chad (U Chicago)

JEL Classifications

G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G34: Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
L14: Transactional Relationships; Contracts and Reputation; Networks
L22: Firm Organization and Market Structure
L60: Industry Studies: Manufacturing: General
M11: Production Management

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