‘Make or Buy’ as Competitive Strategy: Evidence from the Spanish Local TV Industry

In this paper we empirically investigate whether changes in product market competition affect firm boundaries — the perennial make-or-buy problem. Exploiting regulation-induced shocks to entry barriers and differences in regulation enforcement across cities to obtain a source of exogenous variation in product-market competition, we establish a negative causal effect of competition (through reduced entry barriers and a larger number of rival firms) on vertical integration in the setting of the Spanish local television industry between 1995 and 2002. We also find that stations located in larger markets are on average more likely to produce their content in-house than stations in smaller markets, and that private stations and stations belonging to a network tend to outsource more. JEL Codes: D22, L22, L24, L82