This paper examines the evolution of the vertically integrated firm in terms of coordination economies. First, we develop the concept of coordination efficiency, which is defined by the sum of transaction, risk and set-up costs of the coordination design. The transaction and risk costs are positively related to uncertainty, transaction specificity, transaction frequency, and the potential volume ... [Show full abstract] of transactions. The set-up costs of the coordination design are determined by the complexity, as well as incentive and cognitive compatibility of the coordination design. Second, this concept is applied to the question of the evolution of the vertically integrated firm. We show that the vertically integrated firm evolves the more (less) likely, the more asymmetric (symmetric) the interfirm transactions are Finally, this result was compared with the Williamsonian governance structure approach which overestimates the likelihood of the evolution of the vertically integrated firm, because Williamson does not differentiate between symmetric and asymmetric specific transactions.