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This paper tests models of vertical integration, with emphasis on incentives that arise from transactions costs and demand variability. The tests are based on a logit analysis of firms' backward integration choices in a sample of thirty-four chemical products. The results are consistent with recent transactions cost theories and the demand variability model proposed by Carlton (1979). Copyright 1991 by Blackwell Publishing Ltd.
Marvin B. Lieberman (Sun,) studied this question.