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This paper aims to examine the effects of the captive market on the upstream affiliated firm\'s productivity and sales growth. We restrict the sample to the Chaebol firms in the SI industry for the period of the year 2009 to the year 2017. The key findings are summarized as follows. First, based on DEA(data envelopment analysis), we find that the captive market ratio has a significant negative effect on the Chaebol firm\'s productivity. The greater the proportion of affiliates\' sales to total sales, the more insensitive the firm might be to efforts to increase production efficiency. Second, the captive market size is not significantly associated with total sales. This suggests that SI firms with relatively heavy dependence on the captive market might not make active efforts to expand sales outside the affiliates\' market, which in turn might lead to long-term productivity decline in the SI industry.

Mi Yon Paek (Korea Fair Trade Mediation Agency)
Hong-Seok Bok (Korea Fair Trade Commission)

[Korean journal of industrial organization, Vol. 29, 2021]