Journal Article

Airing Your Dirty Laundry: Vertical Integration, Reputational Capital, and Social Networks

Ricard Gil and Wesley R. Hartmann

in The Journal of Law, Economics, and Organization

Volume 27, issue 2, pages 219-244
Published in print August 2011 | ISSN: 8756-6222
Published online September 2009 | e-ISSN: 1465-7341 | DOI: https://dx.doi.org/10.1093/jleo/ewp025
Airing Your Dirty Laundry: Vertical Integration, Reputational Capital, and Social Networks

Show Summary Details

Preview

This article explores the relationship between an ethnic-based social network and vertical integration decisions in the laundry services industry. We find that stores in the social network are significantly less likely to vertically integrate than nonmember stores. This has three primary implications. First, the social network may be lowering the costs of using the market more than facilitating in-house production. This implies better outsourcing opportunities in a social network and may explain a documented relationship between social networks and firm economic performance. Second, institutional details of our example and the estimated relationship suggest a role for opportunism and reputation as determinants of the boundaries of the firm in a setting without asset specificity. Finally, although we provide evidence that better access to credit can increase the likelihood of vertical integration, we show that better outsourcing opportunities have a dominant effect of the social network in this particular setting.

Journal Article.  10106 words. 

Subjects: Law ; Economics

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content. subscribe or login to access all content.