Forward Integration and Innovation: Transaction Costs and Beyond

The Transaction Cost Economics (TCE) theory developed by Oliver Williamson has provided a deep understanding of factors behind the vertical integration decisions of firms. This paper begins with a brief case study of forward integration in the early years of select industries. The analysis suggests that other factors, such as capabilities, can complement the TCE approach. The paper shows how TCE has been combined with these other concepts and the Profiting From Innovation framework to provide a more complete analytical toolkit for evaluating forward vertical integration decisions, particularly in the context of innovation.