NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Why Do Firms Own Production Chains?

Enghin Atalay, Ali Hortacsu, Chad Syverson

NBER Working Paper No. 18020
Issued in April 2012
NBER Program(s):   IO   PR

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.

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Document Object Identifier (DOI): 10.3386/w18020

Published: 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

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