Quality and governance mode choice: a transaction cost approach to the wine industry

Abstract

We analyze the relationship between product quality and governance mode choice using the results of a survey of DOC Rioja wineries. Wineries that produce high- quality wines are more likely to vertically integrate than are wineries that produce low-quality wines. Consistent with Transaction Cost Economics, we find evidence that asset specificity and uncertainty are important determinants of vertical integration. Finally, the size of the winery is also an important factor that affects governance mode choice in viticulture.