Vertical integration

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Arpan Agrawal

Dan Pan

This article defines the term vertical integration.

In microeconomics and strategic management, the term vertical integration is a type of related diversification that describes a style of nearly total ownership and control. The degree to which a firm owns its upstream suppliers and its downstream buyers determines how vertically integrated it is. Note, however, that there is no ratio or quantifiable measure to denote this.

Vertically integrated companies are united through a hierarchy and share a common owner. Usually each member of the hierarchy produces a different product or service, and the products are combined to satisfy a common need. It is contrasted with horizontal integration, in which one part of the production process is expanded across several different market segments. A common successful horizontal integration example is how Intel (INTC) has dominated the computer processor market, supplying such chips to several different manufacturers, such as Dell (DELL) , Toshiba (TOSBF) , and the Hewlett-Packard Company (HPQ) .

Vertical integration is one method of avoiding the hold-up problem. A monopoly produced through vertical integration is called a vertical monopoly, although it might be more appropriate to speak of this as some form of cartel.

==Types of Vertical Integration==There Is No Such Thing.

References

1. http://en.wikipedia.org/wiki/Vertical_integration