Management Papers

Document Type

Journal Article

Date of this Version

7-2013

Publication Source

Organization Science

Volume

24

Issue

4

Start Page

1195

Last Page

1213

DOI

10.1287/orsc.1120.0802

Abstract

Although the stylized model of industry evolution suggests that firms transform from vertical integration to specialization over time, many industries still exhibit a continued persistence of integrated firms. In exploring this puzzle, I draw on detailed firm-level data from the semiconductor industry to analyze how integrated incumbents, beyond shifting to the specialized mode, reconfigured in the face of industry’s vertical disintegration so as to coexist with the specialized firms. I propose and find that the incumbents who persist with vertical integration increase their emphasis on systemic innovations and transact with specialized firms in both upstream and intermediate markets. The value-creating opportunities associated with integrated incumbents’ leveraging (a) their relative superiority in developing systemic innovations and (b) markets to pursue a broader menu of transactional choices may offset their costs of staying integrated. These firm-level factors also determine the pattern of industry’s vertical disintegration and the extent of coexistence between integrated and specialized firms.

Keywords

firm boundaries, vertical integration, industry evolution, organizational adaptation, semiconductor industry

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Date Posted: 27 November 2017

This document has been peer reviewed.