TY  - JOUR
AU  - Nagaoka, Sadao
AU  - Takeishi, Akira
AU  - Noro, Yoshihisa
TI  - Determinants of Firm Boundaries: Empirical Analysis of the Japanese Auto Industry from 1984 to 2002
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13063
PY  - 2007
Y2  - April 2007
DO  - 10.3386/w13063
UR  - http://www.nber.org/papers/w13063
L1  - http://www.nber.org/papers/w13063.pdf
N1  - Author contact info:
Sadao Nagaoka
Hitotsubashi University
Institute of Innovation Research
Naka 2-1, Kunitachi
Tokyo, Japan 186-8603
Fax: 81-42-580-8410
E-Mail: nagaoka@iir.hit-u.ac.jp

Akira Takeishi
Hitotsubashi University
Institute of Innovation Research
Naka 2-1, Kunitachi
Tokyo 186-8603, Japan
Tel: 81-42-580-8425
Fax: 81-42-580-8410
E-Mail: takeishi@iir.hit-u.ac.jp

YOSHIHISA NORO
Mitsubishi Research Institute, Inc.
Otemachi 2-3-6, Chiyoda-ku
Tokyo 100-8141, Japan
E-Mail: noro@mri.co.jp
M1  - published as Sadao Nagaoka, Akira Takeishi, Yoshihisa Noro. "Determinants of Firm Boundaries: Empirical Analysis of the Japanese Auto Industry from 1984 to 2002," in George Baker, Takeo Hoshi, Hideshi Itoh, and Sadao Nagaoka, organizers, "Organizational Innovation and Firm Performance" Journal of the Japanese and International Economies 22(2), June 2008 (Elsevier Inc.) (2008)

M3  - presented at "TRIO Conference", December 15-16, 2006
AB  - We have assessed the determinants of the choice of integration, relational contracting (keiretsu sourcing) and market sourcing by seven Japanese automobile manufacturers (OEMs) with respect to 54 components in light of contract economics. Our major findings are the following. First, the specificity and interdependency of a component significantly promotes vertical integration over keiretsu and keiretsu over market, consistent with transaction cost economics. Second, interdependency is a more important consideration for the former choice than for the latter choice, and the reverse is the case for specificity. This suggests that the hold-up risk due to specific investment can be often effectively controlled by a relational contracting based on keiretsu sourcing, while accommodating non-contractible design changes may often require vertical integration. Third, while higher testability of a component makes the effects of specificity significantly smaller, it also promotes the choice of keiretsu sourcing over market sourcing. One interpretation of this last result is that while higher testability improves the contractibility of the component with high specificity, it simultaneously enhances the advantage of keiretsu sourcing since it provides more opportunities for the supplier to explore new information for a collaborative exploitation with an OEM.
ER  -