Tacit Knowledge and the Dynamics of Vertical Scope: an Application to Regulated Industries

Hagen Worch (Eawag, Swiss Inst. of Aquatic Science & Technology)
Bernhard Truffer (Eawag, Swiss Inst. of Aquatic Science & Technology)

Abstract: This paper extends existing approaches to explain vertical scope by introducing tacit knowledge as an important factor shaping processes of integration and disintegration. Considering the impact of tacit knowledge in interaction with knowledge similarities across vertical stages, we provide a resource-based view argument for the emergence of different governance modes. The paper analyzes the specific conditions, under which organizations not only chose between markets and hierarchies but implement different governance modes such as close cooperation with other companies and the integration in networks and alliances. Then, we apply this framework in the context of regulated industries. Distinguishing between three types of regulatory regimes, we assess the impact of knowledge similarities and tacit knowledge on vertical integration and disintegration in regulated sectors. Our findings suggest that knowledge similarities and tacitness generate integrative and disintegrative forces that may be in conflict with the established regulatory framework. We derive implications on some managerial and regulatory issues, and how to address them.

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