Competence relatedness, asset specificity and vertical integration : an integrating model of transaction cost economics and the competence perspective

Abstract

This study develops a conceptual model that explains vertical integration as a synthesis of transaction costs economics and the competence perspective. It is proposed that variables derived from these two perspectives are complementary and interact in the vertical integration decision. The underlying behavioral assumptions in the two perspectives are examined and discussed. The assumptions of opportunism and bounded rationality as used in the TCE- framework are respecified and based on a synthesis of transaction cost economics, evolutionary economics and the resource-based perspective. The model developed was empirically tested on a sample of Norwegian hydroelectric power stations industry. The results from the test show that the concepts derived from the two perspectives have substantial impact on the vertical integration decision. Consequently, the synthesis provides a much more powerful framework for explaining vertical integration, than the two perspectives may contribute in isolation. Accordingly, the two perspectives should be integrated into a unified framework sharing the same set of assumptions. Transaction cost economics and the competence perspective are not, as previously argued, in conflict, but are complementary. In the last part of the dissertation theoretical and managerial implications are presented and discussed, and suggestions for future research are provided.