Computer-based Automation and the Governance of Vertical Transactions

The purpose of tbis paper is to analyse tbe impact of computer-based production technologies on firms ' choice of governance mode for vertical transactions. We argue that in the long run diffusion of the new technologies should lead to a wider use of arm's length relationships with suppliers of increasingly standardized intermediate goods. In the early stage of diffusion, however, vertical transactions should tend to be internalized under hierarchical control. In any case, network configurations based on subcontracting are negatively affected. Evidence supporting these arguments is provided through a 'laboratory ' study of maJet-or-buy decisions made by 100 adopter firms in tbe Italian metalworking industry. 1.