VERTICAL INTEGRATION IN LATE NINETEENTH CENTURY U.S. INDUSTRY
Abstract
This thesis reexamines, in the light of a different and perhaps better model, the emergence of the large, vertically integrated, business structure in the U.S. in the late nineteenth century. It was during this period that the U.S. witnessed the apparent shift of considerable proportions from the given distribution of market exchange to internal exchange. It is hypothesized that, in part, this vertical integration was a response to transactions costs generated by uncertainty and a growing, specific, fixed capital. The theoretical framework that is adopted is the model of the quantity-setting firm in which a risk adverse decision-maker maximizes the expected utility of profits. Assuming price uncertainty, several of the implications of the model are presented for both the input and output markets. The primary thrust is that the attenuation of transactions costs due to uncertainty provides a motive to coordinate and rationalize flows across the stages of production. The focus is on the firm rather than the industry, and the concern is with the first-movers in situations which could be viewed as functionally competitive. While the initial changes may have resulted in defensive postures culminating in oligopolistic structures, the thesis abstracts from the motive of market control. Two case studies are conducted to examine the robustness of the model. The two firms selected were chosen such that the product type, timing, and direction of the integration differed. Subject to these criteria the industries studied are iron and steel and meat packing with the focus on Carnegie Steel Company and Swift & Company respectively. The results are that we have a discriminating means to examine the selective nature of organizational change with respect to two dramatic integration moves in the late nineteenth century. Both the model that is developed and the historical record which is reviewed generated consistent results within a competitive environment.
Degree
Ph.D.
Subject Area
Economic history
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