ABSTRACT
This chapter aims to make a small contribution to a dynamic theory of vertical integration and the boundaries of firms. It enlarges upon the framework of Langlois (1988; Langlois and Robertson 1995), who has argued that rapid economic change leads to vertical integration, rather than to disintegration as in the case of the original Stigler model of industry evolution. This counterhypothesis can be constructed with reference to a dynamic theory of the firm which differs from the transaction costs approach as well as other static theories. In particular, our contribution relies on a competence-based theory of the firm, which stems from a definition of technology in which the tacit element is emphasized (Cantwell 1989, 1992a, 1994). From this theoretical background, we claim that the nature of the technological paradigm defines the nature of the learning process in each industry, which in turn sets some of the conditions for vertical integration decisions. We then examine data which provide an initial test of this hypothesis, by looking at the evolution of vertical integration at an international level in multinational companies.
