Monday, June 11, 2012
Posted by D. Daniel Sokol
Enghin Atalay University of Chicago - Department of Economics, Ali Hortacsu University of Chicago - Department of Economics, Chad Syverson University of Chicago - Department of Economics ask Why Do Firms Own Production Chains? This paper is worth a download.
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.