Cost Reduction through Vertical Integration: Empirical Evidence from Iran's Steel Industry

Document Type : applicative

Authors

1 Associate Professor, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

2 M.A. Student in Economics, Faculty of Social Sciences and Economic, Alzahra University, Tehran, Iran.

10.30473/jier.2026.79152.1561

Abstract

The purpose of this study is to examine the relationship between vertical integration strategy and production costs in Iran’s steel industry. To this end, a panel data approach was applied to nine steel companies listed on the Tehran Stock Exchange over a five-year period. Four criteria were employed to assess the level of vertical integration among firms: the Value-Added-to-Sales Ratio. the Maddigan index, the Rumelt index, and the Adelman index. The findings of the econometric model estimation indicate that only the Value-Added-to-Sales Ratio exhibits a negative and statistically significant relationship with production costs; this significance was further confirmed by Wild Cluster Bootstrap robustness tests. By contrast, the statistical evidence suggests that the Maddigan, Rumelt, and Adelman indices show no significant association with cost structure. Furthermore, examination of the control variables revealed that cost variations are more closely correlated with firm-level internal efficiency than with the degree of market concentration. Based on these findings, implementing a vertical integration strategy in Iran’s steel industry is associated with lower costs through improved economic efficiency; nevertheless, due to the unavoidable limitations of sample size, the results of this study reflect a statistical association only and should not be interpreted as evidence of a definitive causal relationship.

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History

  • Receive Date: 20 August 2026
  • Revise Date: 21 September 2026
  • Accept Date: 26 October 2026

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