This paper focuses on vertical integrate for innovation and examines the topic both theoretically and empirically. A three-pronged analysis of the decision is derived using organizational economic, resource-based and strategic theoretical considerations relating to vertical integration. This results in the formation of conceptual models that are empirically tested using cross-sectional data of startup acquisitions in the software industry from 2009-2019. The results of the empirical tests indicate that vertical integration for innovation is determined by more than just organizational economic considerations and supports the calls of researchers to study vertical integration using more comprehensive views. The results also indicate that the organizational economic concerns of asset specificity, asymmetric information and integration-specific costs are most relevant to the vertical integration decision as it relates to innovation. Resource-based considerations dealing with tacit-knowledge and firm coding systems were also found to be significant. While strategic concerns were not found to be significant in my model, caution should be taken for total rejection of this framework due to measurement concerns and strong theoretical support. The results indicate there is value in approaching studies of vertical integration for innovation from multiple perspectives and have important implications for firms’ optimal innovative strategies.


Tian, Huiting


Business Economics


Business | Economics


startups, vertical integration, innovation, organizational economics, transaction costs, resource-based view, strategic

Publication Date


Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis



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