Explore the vast range of titles available.

For a period starting in 2015, Apple, Google, and Microsoft became the most valuable companies in the world. Each was marked by an external developer ecosystem. Anecdotally, at least, developers matter. Using a formal model of code spillovers, we show how a rising number of developers can invert the firm. That is, firms will choose to innovate using open external contracts in preference to closed vertical integration. The locus of value creation moves from inside the firm to outside. Distinct from physical goods, digital goods afford firms the chance to optimize spillovers. Further, firms that pursue high risk innovations with more developers can be more profitable than firms that pursue low risk innovations with fewer developers. More developers give platform firms more chances at success. Our contribution is to show why developers might cause a shift in organizational form and to provide a theory of how platform firms optimize their own intellectual property regimes in order to maximize growth. We use stylized facts from multiple platform firms to illustrate our theory and results.

Purpose Companies increasingly exchange information to work more closely with supply chain partners. Although information exchange is a critical element for up- and downstream partnerships, the purpose of this paper is to indicate that it is not a guarantee for improved performance and should be combined with other integration tactics to fully capture its benefits. Design/methodology/approach Using a global sample in the industrial sector, a moderated mediation framework for both upstream and downstream integration, which links integration tactics to operational performance, was empirically tested. Findings This research shows that operational integration is indispensable to capture the benefits of information exchange. In addition, it points out that the impact of the use of information technology (IT) is stronger for upstream integration. Practical implications While the data show that the use of IT significantly improves the delivery performance in the supply chain, it also signals to managers how and when to invest in supply chain integration tactics. Originality/value This paper contributes to a better understanding of the supply chain integration-performance link, by clarifying some of the inconsistencies in previous literature and by simultaneously analyzing upstream and downstream implications.

We examine the determinants of vertical acquisitions using product text linked to product vocabulary from input-output tables. We find that the innovation stage is important in understanding vertical integration. R & D-intensive firms are less likely to become targets of vertical acquisitions. In contrast, firms with patented innovation are more likely to sell to vertically related buyers. Firms’R & D intensity is a more important deterrent to their vertical acquisitions when the provision of innovation incentives by potential acquirers is more difficult. The role of patents in fostering vertical acquisitions is more prevalent when potential buyers face a higher risk of holdup.

The success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm's outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are bundled by the focal firm, and downstream complements that are bundled by the firm's customers. We hypothesize that the effects of external innovation challenges depend not only on their magnitude, but also on their location in the ecosystem relative to the focal firm. We identify a key asymmetry that results from the location of challenges relative to a focal firm — greater upstream innovation challenges in components enhance the benefits that accrue to technology leaders, while greater downstream innovation challenges in complements erode these benefits. We further propose that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography equipment industry from its emergence in 1962 to 2005 across nine distinct technology generations. We find strong empirical support for our framework.

We study the impact of vertical integration on pricing incentives in multiproduct industries. To do so, we exploit recent variation in vertical structure in the US carbonated-beverage industry. While the elimination of double marginalization with vertical integration is normally characterized as procompetitive, economic theory predicts that it may cause anticompetitive price increases in multiproduct industries. We indeed find that vertical integration causes price decreases in products with eliminated double margins but price increases in the other products sold by the integrated firm. These results provide new evidence of anticompetitive effects of vertical mergers.

PurposeUncertainties caused by political risks can drastically affect global supply chains. However, the supply chain management literature has thus far developed rather limited knowledge on firms' perception of and reactions to increased political risks. This study has two main purposes: to explore the relationship between extant risk exposure and perceived firm-specific political risk and to understand the impact of firm-specific political risk on firms' vertical integration and diversification strategies.Design/methodology/approachThe authors developed a unique dataset for testing our hypotheses. Specifically, the authors sampled manufacturers (SIC20-39) listed in the United States from 2002 to 2019. The authors collected financial and diversification data from Compustat, vertical integration data from the Frésard-Hoberg-Phillips Vertical Relatedness Data Library and political risk data from the Economic Policy Uncertainty database. This data collection process yielded 1,287 firms (8,329 observations) with available data for analysis.FindingsA two-way fixed-effect regression analysis of panel data revealed that firms tend to be more sensitive to political risk when faced with income stream uncertainty or strategic risk. By contrast, exposure to stock returns uncertainty does not significantly influence firms' sensitivity toward political risk. Moreover, firm-specific political risk is positively associated with vertical integration and product diversification. However, firm-specific political risk does not result in higher levels of geographical diversification.Originality/valueThis study joins the literature that systematically explores the antecedents and implications of firm-specific political risk, thus broadening the scope of supply chain risk management.

This paper measures the impact of vertically integrated and exclusive software on industry structure and welfare in the sixth-generation of the US video game industry (2000-2005). I specify and estimate a dynamic model of both consumer demand for hardware and software products, and software demand for hardware platforms. I use estimates to simulate market outcomes had platforms been unable to own or contract exclusively with software. Driven by increased software compatibility, hardware and software sales would have increased by 7 percent and 58 percent and consumer welfare by $1.5 billion. Gains would be realized only by the incumbent, suggesting exclusivity favored the entrant platforms.

We use broad-based yet detailed data from the economy's goodsproducing 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.

Brand equity and vertical integration are focal, strategic elements of a franchise system that can profoundly influence franchise performance. Despite the recognized importance of these two strategic levers and the longstanding research interest in the topic, our understanding of the interplay between brand equity and vertical integration (company ownership of outlets) in a franchise system remains incomplete. In this study, we revisit the five-decade-old question of how brand equity affects vertical integration in a franchise system and present some novel, nuanced insights into the topic. Evidence from a Bayesian Panel Vector Autoregressive model on a large panel data set shows that brand equity has a powerful, lagging inverse effect on vertical integration, such that higher brand equity leads to less downstream vertical integration in a franchise system. Reverse causality analyses identify a less pronounced but present reciprocal effect. Boundary conditions analyses reveal that the negative effect of brand equity on vertical integration is weaker in franchise systems with international presence and in retail-focused (vs. service-focused) franchises, and stronger in franchise systems with more financial resources. These findings (a) challenge traditional views (e.g., transaction cost theory, resource-based view, ownership redirection hypothesis) on the topic by demonstrating a negative effect for brand equity on vertical integration in franchise systems and showing that greater financial resources amplify this effect, and (b) shed new light on the intricate dynamics (temporal causation, reverse causation) and contingencies of this debated effect. Managerially, this research draws attention to the underrecognized strategic benefit of brand equity in mitigating channel governance issues and advise against unnecessary vertical integration, especially when brand equity is robust.

We examine empirically and theoretically the relation between firms’ risk and distance to consumers in a production network. We document two novel facts: firms farther away from consumers have higher risk premiums and higher exposure to aggregate productivity. We quantitatively explain these findings using a general equilibrium model featuring a multilayer production process. The economic force is “vertical creative destruction,” that is, positive productivity shocks to suppliers devalue customers’ assets-in-place, thereby lowering the cyclicality of downstream firms’ values. We show that vertical creative destruction varies with competition and firm characteristics and generates sizable cross-sectional differences in risk premiums.