The Impact of Geographical Proximity on Vertical Integration through Specific Assets: The Case of the Spanish Meat Industry

Abstract

The aim of this paper is to evaluate the role that agglomeration may have on vertical boundaries in exchanges associated with high transaction costs. Transaction cost economics identifies the presence of specific assets in stages of the value chain as the main driver of vertical integration. However, under the trustworthy and shared social milieu that agglomerated spaces may confer, neighboring firms can enjoy lower opportunism risk and communication costs. Therefore, we assume that even in the presence of specific assets, physically proximate firms are more likely to remain specialized and establish market exchanges. Empirical evidence in 10,186 establish- ments from the Spanish meat industry confirms these hypotheses, although it is found that the moderating role of agglomeration in the relationship between asset specificity and vertical inte- gration has a limited geographical reach. grow_541