English, Article, Journal or magazine article edition: Vertical Scope Revisited: Transaction Costs vs Capabilities & Profit Opportunities in Mortgage Banking Michael G. Jacobides; Lorin M. Hitt

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Bookmark: http://trove.nla.gov.au/version/190554
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Vertical Scope Revisited: Transaction Costs vs Capabilities &​ Profit Opportunities in Mortgage Banking
Author
  • Michael G. Jacobides
  • Lorin M. Hitt
Physical Description
  • preprint
Notes
  • What determines vertical scope? Transactions cost economics (TCE) has been the dominant paradigm for understanding "make" vs. "buy" choices. However, the traditional focus on empirically validating or refuting TCE has taken attention away from other possible drivers of scope, and it has rarely allowed us to understand the explanatory power of TCE versus other competing theories. This paper, using a particularly rich panel dataset from the Mortgage Banking industry, explores both the extent to which TCE predictions hold, and their ability to explain the variance in scope, when compared to all other possible drivers of integration. Using some direct measures of transaction costs, we observe that integration does mitigate risks; yet such risks and transaction costs do not seem to drive firm-level decisions of integration in retail production of loans. Rather, capability-driven and capacity- (or limit to growth-) driven considerations explain a significant amount of variance in our sample, under a variety of specifications and tests. We thus conclude that while TCE explanations of vertical scope are important, their impact is dwarfed by capability differences and by the desire of firms to leverage their capabilities and productive capacity by using the market.
  • Mortgage Banking; Transaction Costs; Integration; Capabilities; Capacity Constraints; Limits to Growth
  • RePEc:wop:pennin:01-17
Language
  • English
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