Vertical mergers have become an important business strategy among food manufacturers because it allows them to manage and customize their production according to consumer needs. Economic theories have shown that vertical mergers may be induced by transaction costs, demand variability, and other factors. Using an input-output methodology, a measure of vertical merger is developed for U.S. food manufacturing industries and the transaction cost hypotheses tested in an attempt to examine the factors that motivate vertical mergers in the food manufacturing industries. The results are consistent with previous studies that confirm the role of transaction cost factors, such as lock-in effects in terms of asset specificity and managerial diseconomies.


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