Explaining Vertical Integration: Lessons from the American Automobile Industry

Abstract

The early history of the American automobile industry provides fertile hunting grounds for theorists seeking corroboration of various, conflicting theories of vertical integration. An examination of the whole history suggests that no single theory always fits the facts perfectly. A complete explanation must combine specific theories in a way that is attentive to such factors as industry life-cycle, demand, economies of scale, and appropriability. If there is any “general” theory, it lies in the set of “dynamic” transaction-cost approaches rather than in the asset-specificity approach now dominant.