| This dissertation addresses the following questions: Why do firms vertically integrate? How does vertical integration affect the adoption of new technologies? Why do industries vertical disintegrate? To answer these questions I study two distinct industries: the American Healthcare Industry in the 1990s and the Lancashire Cotton Industry in the 19th century.; The first chapter considers the American Healthcare Industry and shows that in the 1990s hospitals have formed joint ventures with physicians to prevent under-investment in outpatient and birthing services. The results show that while joint-ventures are successful, vertical integration with hospitals buying the physician practices is not necessary to protect the hospitals from the opportunistic behavior of the physicians. The analysis also shows that the growth of managed care determines the degree of under-investment that occurs if the hospital does not form joint-ventures or vertically integrate with physicians. Thus, joint-ventures between hospitals and physicians are beneficial for the provision of birthing and outpatient services in markets where managed care has a strong presence.; The second chapter studies the adoption of rings after 1880 in Lancashire. Lazonick claimed that the organizational structure of the Lancashire Cotton Industry, with its majority of non-integrated firms, impeded the diffusion of high-throughput technologies such as ring spinning. Using new firm level data for the whole population of Lancashire cotton firms, my analysis finds that the vertical organization did not play a critical role in the adoption of ring spinning in Lancashire.; The third chapter models endogenously the vertical disintegration of a competitive industry. Vertical integration can occur only if there are (weak) economics of vertical scope. If economies of vertical scope are present then the relative ratio of demands of the intermediate input and of the final output determines the vertical organization of the industry. Moreover, vertically integrated firms are present in equilibrium if they can purchase some of the intermediate input in the market. This model explains the process of vertical disintegration of the Lancashire Cotton Industry in the 19th century. |
