Internalization of Advertising Services: Testing a Theory of the Firm
<jats:p> 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...
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| Format: | Article |
| Language: | English |
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Institute for Operations Research and the Management Sciences (INFORMS)
2022
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| Online Access: | https://hdl.handle.net/1721.1/144255 |
| _version_ | 1811088918592880640 |
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| author | Wernerfelt, Birger Silk, Alvin Yu, Shuyi |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Wernerfelt, Birger Silk, Alvin Yu, Shuyi |
| author_sort | Wernerfelt, Birger |
| collection | MIT |
| description | <jats:p> 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. </jats:p> |
| first_indexed | 2024-09-23T14:10:00Z |
| format | Article |
| id | mit-1721.1/144255 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T14:10:00Z |
| publishDate | 2022 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/1442552023-04-10T19:07:11Z Internalization of Advertising Services: Testing a Theory of the Firm Wernerfelt, Birger Silk, Alvin Yu, Shuyi Sloan School of Management <jats:p> 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. </jats:p> 2022-08-05T18:10:01Z 2022-08-05T18:10:01Z 2021 2022-08-05T18:02:29Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/144255 Wernerfelt, Birger, Silk, Alvin and Yu, Shuyi. 2021. "Internalization of Advertising Services: Testing a Theory of the Firm." Marketing Science, 40 (5). en 10.1287/MKSC.2021.1290 Marketing Science Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) MIT web domain |
| spellingShingle | Wernerfelt, Birger Silk, Alvin Yu, Shuyi Internalization of Advertising Services: Testing a Theory of the Firm |
| title | Internalization of Advertising Services: Testing a Theory of the Firm |
| title_full | Internalization of Advertising Services: Testing a Theory of the Firm |
| title_fullStr | Internalization of Advertising Services: Testing a Theory of the Firm |
| title_full_unstemmed | Internalization of Advertising Services: Testing a Theory of the Firm |
| title_short | Internalization of Advertising Services: Testing a Theory of the Firm |
| title_sort | internalization of advertising services testing a theory of the firm |
| url | https://hdl.handle.net/1721.1/144255 |
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