Internalization of Advertising Services: Testing a Theory of the Firm
Name
WSY_JN_2021_Internatlization.pdf
Description
Accepted version
Size
1.65 MB
Format
Adobe PDF
Checksum (MD5)
373afc1e17986766bac519dfb97db2a0
Author(s)
Wernerfelt, Birger
Silk, Alvin
Yu, Shuyi
Date Issued
2021
Journal
Marketing Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Wernerfelt, Birger, Silk, Alvin and Yu, Shuyi. 2021. "Internalization of Advertising Services: Testing a Theory of the Firm." Marketing Science, 40 (5).
Version
Author's final manuscript
Abstract
In 1956, a group of trade associations representing publishers and independent advertising agencies signed a consent decree aimed at ending a set of trade practices that for half a century effectively precluded advertisers from owning and operating in-house agencies. Since then, large firms have internalized more and more of the services formerly performed by external agencies, perhaps as many as half. We use this phenomenon to test a theory of the firm, thereby simultaneously offering an explanation for it. The theory suggests that firms should internalize activities for which their competitive position implies (1) that it is more important for human capital to be firm specific as opposed to function specific and (2) that frequent modifications are desirable. It also predicts (3) that these two effects reinforce each other. This is the first paper to report on a test of the specialization hypothesis, and we find that it is robustly significant in a cross-sectional data set covering nine different agency activities in 79 firms. In addition to the cross-sectional test, we informally present some time-series data suggesting that both specialization and frequency have grown over time along with the level of internalization.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1287/MKSC.2021.1290
