M ARCO TEÓRICO EN A DMINISTRACIÓN DE P ROYECTOS

Lateral integration into components, backward into raw materials, and forward into distribution are successively examined. The analysis through- out tracks the logic of the simple contractual schema – in that the move from market to hybrid to hierarchy is predicted as asset specifi city and outlier disturbances increase. Asset specifi city refi nements − as among

physical, human, site, dedicated, and brand name capital – are also con- sequential. With respect, for example, to mobile physical assets (such as specialized dies), it may be possible for the specialized investments to be made by the buyer, who relieves bilateral dependency by assigning the spe- cialized dies to the winning bidder for the duration of the supply contract and repossessing and reassigning these to a successor if the original bidder does not win the renewal contract.15 _{The need for unifi ed ownership is also}

relieved by the use of credible commitments to support hybrid contract- ing – as with exchange agreements, or for organizing distribution through a large number of geographically dispersed outlets by franchising rather than by forward integration (although there is also merit in dual distri- bution). As, however, asset specifi city and disturbances increase, unifi ed ownership is predicted.

5.1 Lateral Integration

Economies are commonly ascribed to the integration of successive stages in the ‘technological core’, an example of which is the unifi ed ownership of iron- and steel-making stages by reason of thermal economies (Bain, 1968, p. 381). By contrast, lateral integration into components that lack such a ‘physical or technical aspect’ is (under technological reasoning) believed to be deeply problematic. As discussed above, monopoly purpose and eff ect were commonly ascribed to these.

Transaction cost economics disputes such reasoning. All that is implied by thermal economies (or, more generally, by the physical or technical aspects to which Bain refers) is that the two stages be located adjacent to each other. The governance issue is whether the exchange of product across these co-located stages should be mediated by market or by hierarchy. Unless contractual problems are projected, there is no reason why each stage could not be independently owned and the two stages joined by an interfi rm contract. If, therefore, co-located stages are integrated, that is because transaction cost economies are thereby realized: unifi ed owner- ship relieves the contractual hazards that would otherwise arise between independent, site-specifi c trading entities.

But there is more: transaction cost economics also selectively off ers an economizing interpretation for transactions that lack the ‘physical or technical aspects’ to which Bain refers. As discussed in Section 3 above, the outsourcing of separable components of a non-site-specifi c kind is the paradigm problem on which transaction cost economics is based and to which empirical tests were fi rst applied (Monteverde and Teece, 1982; Masten, 1984).16 _{The upshot is that the same comparative contractual}

Opening the black box of fi rm and market organization 21 site-specifi c or not. The contrast with earlier antitrust predilections is stark.17

5.2 Raw Materials Procurement

Except perhaps for very atypical cases, an effi ciency case for vertical integration backward into raw materials is believed to be rare if not non- existent. Surely the lesson of the Ford Motor Company’s ‘fully integrated behemoth at River Rouge, supplied by an empire that included ore lands, coal mines, 700,000 acres of timberland, sawmills, blast furnaces, a glass works and coal boats, and a railroad’ (Livesay, 1979, p. 175) is that this was vertical integration run amok.

Exactly right: maybe comprehensive vertical integration has the appear- ance of being an engineer’s dream, but it is not an economic ideal. As John Stuckey’s examination of backward integration from the refi ning into the raw materials stage in the Australian aluminum industry reveals, the transactional details matter. Bauxite ore, it turns out, is not a uniform mineral but, instead, is ‘a heterogeneous commodity, . . . [where] the ore in any deposit has unique chemical and physical properties’ (Stuckey, 1983, p. 290). That is consequential: the cost diff erence of processing a mixed- hydrate bauxite, which is effi ciently processed with a high-temperature technology, in a low-temperature refi nery instead, comes to almost 100 percent (Stuckey, 1983, pp. 53–4). Other details also matter. Bauxite storage covers are needed for some ores and not for others (p. 49); residue processing costs vary greatly (p. 53); and air pollution equipment is tailored to the attributes of the bauxite (p. 60). Moreover, although smelting is less idiosyncratic, there is, nevertheless, an ‘art part of smelting’, which is upset if the aluminum supply is varied (p. 63).

Not every refi nery, however, is dependent on a specifi c bauxite deposit. Thus, whereas most of the above described economies are realized by spe- cializing the characteristics of a local refi nery to a local bauxite deposit (as in Australia), the same cannot be said for remotely located refi neries, as in Japan, where a general purpose refi nery that can process bauxite ores procured on the world market has countervailing advantages.

Interestingly, regulatory concerns sometimes get in the way of back- ward integration – an example of which is the bilateral dependency that sometimes arises between fuel source and operating stages in electricity generation by coal-burning generators (Joskow, 1987). Lest utilities ‘inte- grate backward into coal production to shift profi ts from a regulated to an unregulated activity, the regulatory process has discouraged this’ (Joskow, 1987, p. 284, n. 17).

burn aff ects its construction and its design thermal effi ciency’ (Joskow, 1987, p. 284). In some regions, as in the Eastern United States, coal of relatively uniform quality is available from a large number of small nearby mines; in other regions, as in the West, deposits are large and coal quality variation among mines and the distances for shipment are great (1987, p. 284). ‘Mine mouth’ generating plants of specifi c design are often observed for the latter. More generally, comparative contractual reasoning predicts that longer-term and more nuanced contracts will be observed for the West than in the East, which is borne out by the data: ‘as relationship-specifi c investments become more important, the parties . . . fi nd it advantageous to rely on longer-term contracts that specify the terms and conditions of repeated transactions ex ante, rather than relying on repeated bargaining’ (Joskow, 1987, p. 296).

5.3 Forward into Distribution

A huge franchising literature in economics and marketing examines the decision of whether producers should own some or much of their distribu- tion system or contract with others to manage the distribution of goods and services instead. In the event of the latter, vertical market restrictions often apply, a common purpose being to protect the network against brand name devaluation (Klein and Leffl er, 1981).

Many economizing issues are posed by forward integration into market- ing and the uses of vertical market restrictions, of which asset specifi city (especially in the form of brand name capital) is only one. Transaction cost reasoning nevertheless plays a central role in the marketing decision (Coughlan et al., 2005) as to which contractual mode to choose and, if the market, whether contractual restrictions should be imposed. Contrary to the ‘inhospitality tradition’ in antitrust,18 _{vertical market restrictions will}

yield social benefi ts if the requisite transaction cost pre-conditions are satisfi ed.

6. PRICE THEORETIC ISSUES