Computer-based Automation and the Governance of Vertical Transactions.

The purpose of this paper is to analyse the impact of computer-based production technologies on firms' choice of governance mode for vertical transactions. We argue that in the long run diffusion of the new technologies should lead to a wider use of arm's length relationships with suppliers of increasingly standardized intermediate goods. In the early stage of diffusion, however, vertical transactions should tend to be internalized under hierarchical control. In any case, network configurations based on subcontracting are negatively affected. Evidence supporting these arguments is provided through a 'laboratory' study of make-or-buy decisions made by 100 adopter firms in the Italian metalworking industry. [ABSTRACT FROM AUTHOR]