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This thesis examines the drivers and competitive implications of changing vertical scope, looking at an industry that has undergone significant “un-bundling” over the last decades, not least because of information technology: mortgage banking. The first chapter contains a business history, looking at how the division of labor in the mortgage value chain changed over the last century in general, and two decades in particular. Technological and institutional factors that led to vertical specialization are highlighted. The second chapter looks at the existing theory on vertical integration, and critically examines new institutional economics—and its critics. The third chapter expands the theory on the costs of using the market. Rather than look at hold-up costs, I explore the coordination-and information-related transaction costs of market-based procurement, and explain how history and information technology are changing them, leading to intermediate market creation; I support the analysis with archival and interview evidence. I also explore the role of fixed cost infrastructures that support market exchange. The fourth chapter argues that to understand the evolution of vertical scope, we have to also look at firm capabilities, and firms' limits to expansion in addition to (however broadly defined) transaction costs. It is “gains from trade”—the ability of different firms to draw on each other's resources—that drive vertical specialization. I use a computational general equilibrium model that simulates an industry with varying distributions of firm capabilities upstream and downstream, and examine how they interact with transaction costs and limits to expansion to affect vertical scope. Through this model, I also examine the strategic implications of changing scope, looking at how capabilities combine with transaction costs to shape firm profitability, in terms of level and distribution of profits. The implications of Information Technology are also revisited, and spec