The effect of coordination requirements on sourcing: Evidence from patent prosecution services

Although the link betweencoordination requirements and vertical integration istheoretically well established, empirical tests of thisrelationship are hard to implement due to the simulta-neous determination of both variables. In this study,we take advantage of regulatory changes in patentprosecution in the United States to provide plausiblycausal evidence linking increases in coordinationrequirements with insourcing. Moreover, we examinethe role of plural sourcing, that is, simultaneously mak-ing and buying, when responding to changes in coordi-nation requirements. We find that the move towardinsourcing is more pronounced for plural-sourcingfirms as compared to firms relying on outsourcing.These results are consistent with the view that pluralsourcing provides firms with flexibility to switchbetween sourcing modes when facing changing coordi-nation requirements