| A conspicuous feature of the automobile manufacturing industry in Japan is that Japanese firms are less vertically integrated than their American counterparts. Rather than vertical integration, the Japanese auto manufacturer (e.g., Toyota, Nissan, etc.) surrounds itself with a group of auto-parts suppliers that are bound to the auto maker through shareholdings, exchange of directorates or management, and technological and financial assistance.;This dissertation examines the subcontracting arrangements in the Japanese automobile manufacturing industry from the perspective of transactions-cost theory and the problem of opportunistic behavior. A central theme of this thesis is that the kigyo group structure serves to mitigate parts-suppliers' opportunism by lowering transactions costs. With respect to lowering such transactions costs, the kigyo group achieves the same end as vertical integration. In this respect, I propose that the kigyo group is a Japanese form of vertical integration.;In this research, I find that the auto maker tends to take a parts supplier into its group if it produces specific parts with high supplier-switching costs. Also, the kigyo group structure mitigates suppliers' opportunism through the monitoring of production information and control over supplier's behavior.;If the kigyo group serves to mitigate opportunism, then one might ask why the auto maker does not fully own its supplier? Full-vertical integration of the production process or total internalization of the organization of production might completely reduce the opportunism. To answer this question, I applied the concept of vertical-integration costs or "x-inefficiency" costs.;The conclusions of this research are important in the broader context of economic theory in general and for transactions-cost theory in particular. Transactions-cost theory offers an explanation for the emergence of certain forms of vertical contractual relationships rather than the emergence of vertical integration. The Japanese automobile manufacturing industry provides a natural experiment to test this theory. |
