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In
microeconomics Microeconomics (from Greek prefix ''mikro-'' meaning "small" + ''economics'') is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce reso ...
,
management Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit, non-profit organization, or a government body. It is the art and science of managing resources. Management includes the activities o ...

management
, and
international political economy International political economy (IPE), also known as global political economy (GPE), refers to either economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), pro ...
, vertical integration is an arrangement in which the
supply chain In commerce, a supply chain is a system of organizations, people, activities, information, and resources involved in supplying a product (business), product or service (business), service to a consumer. Supply chain activities involve the transfor ...

supply chain
of a company is integrated and owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It is contrasted with
horizontal integration Horizontal integration is the process of a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, wi ...
, wherein a company produces several items that are related to one another. Vertical integration has also described
management styleManagement Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit organization, or government body. Management includes the activities of setting the strategy of an organization and co ...
s that bring large portions of the supply chain not only under a common ownership but also into one
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...
(as in the 1920s when the
Ford River Rouge Complex The Ford River Rouge Complex (commonly known as the Rouge Complex, River Rouge, or The Rouge) is a Ford Motor Company automobile A car (or automobile) is a wheeled motor vehicle used for transportation. Most definitions of ''cars'' say that ...
began making much of its own steel rather than buying it from suppliers). Vertical integration and expansion is desired because it secures supplies needed by the firm to produce its product and the market needed to sell the product. Vertical integration and expansion can become undesirable when its actions become anti-competitive and impede free competition in an open marketplace. Vertical integration is one method of avoiding the
hold-up problem In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
. A monopoly produced through vertical integration is called a ''vertical monopoly''.


Vertical expansion

Vertical integration is often closely associated with vertical expansion which, in
economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. ...
, is the growth of a business enterprise through the
acquisition Acquisition may refer to: * Takeover, the purchase of one company by another * Mergers and acquisitions, transactions in which the ownership of companies or their operating units are transferred or consolidated with other entities * Procurement, fi ...
of companies that produce the intermediate goods needed by the business or help market and distribute its product. Such expansion is desired because it secures the supplies needed by the
firm A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, with a specific objective. Company members share a common ...
to produce its product and the market needed to sell the product. Such expansion can become undesirable when its actions become
anti-competitive Anti-competitive practices are business or government practices that unlawfully prevent or reduce competition Competition arises whenever two or more parties strive for a common goal A goal is an idea of the future or desired result tha ...
and impede free competition in an open marketplace. The result is a more efficient business with lower costs and more profits. On the undesirable side, when vertical expansion leads toward
monopolistic
monopolistic
control of a product or service then regulative action may be required to rectify anti-competitive behavior. Related to vertical expansion is lateral expansion, which is the growth of a business enterprise through the acquisition of similar firms, in the hope of achieving
economies of scale 330px, As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1. LRAC is the long-run average cost In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their sca ...
. Vertical expansion is also known as a vertical acquisition. Vertical expansion or acquisitions can also be used to increase sales and to gain market power. The acquisition of
DirecTV DirecTV (trademarked as DIRECTV) is an American multichannel video programming distributorMultichannel television in the United States has been available since at least 1948. The United States The United States of America (USA), commonly ...
by
News Corporation The original incarnation of News Corporation (abbreviated News Corp.) was an American Multinational corporation, multinational mass media corporation operated and owned by media mogul Rupert Murdoch and headquartered at 1211 Avenue of the Amer ...
is an example of forwarding vertical expansion or acquisition. DirecTV is a
satellite TV Satellite television is a service that delivers television programming to viewers by relaying it from a communications satellite A communications satellite is an artificial satellite that relays and amplifies radio telecommunication signals via a ...
company through which News Corporation can distribute more of its media content: news, movies, and television shows. The acquisition of
NBC The National Broadcasting Company (NBC) is an American English-language commercial terrestrial radio Radio is the technology of signaling and telecommunication, communicating using radio waves. Radio waves are electromagnetic waves of fr ...
by
Comcast Comcast Corporation (formerly known as American Cable Systems and Comcast Holdings)Before the AT&T AT&T Inc. is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multi ...
is an example of backward vertical integration. For example, in the United States, protecting the public from communications monopolies that can be built in this way is one of the missions of the
Federal Communications Commission The Federal Communications Commission (FCC) is an Independent agencies of the United States government, independent agency of the United States government that regulates communications by radio, television, wire, satellite, and cable across the ...
.


Three types of vertical integration

Contrary to
horizontal integration Horizontal integration is the process of a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, wi ...
, which is a consolidation of many firms that handle the same part of the production process, vertical integration is typified by one firm engaged in different parts of production (e.g., growing raw materials, manufacturing, transporting, marketing, and/or
retailing Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term "retailer" is typically applied where a ...
). Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. There are three varieties of vertical integration: backward (upstream) vertical integration, forward (downstream) vertical integration, and balanced (both upstream and downstream) vertical integration. *A company exhibits backward vertical integration when it controls
subsidiaries A subsidiary, subsidiary company or daughter company is a company (law), company owned or controlled by another company, which is called the parent company, parent, or holding company. The subsidiary can be a company, corporation, or limited liabil ...
that produce some of the inputs used in the production of its products. For example, an automobile company may own a
tire A tire (American English) or tyre (British English) is a ring-shaped component that surrounds a Rim (wheel), wheel's rim to transfer a vehicle's load from the axle through the wheel to the ground and to provide Traction (engineering), tracti ...

tire
company, a
glass Glass is a non- crystalline, often transparency and translucency, transparent amorphous solid, that has widespread practical, technological, and decorative use in, for example, window panes, tableware, and optics. Glass is most often formed by ...

glass
company, and a metal company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product. It was the main business approach of
Ford The Ford Motor Company, commonly known as Ford, is an American multinational automaker that has its main headquarters in Dearborn, Michigan, a suburb of Detroit (strait) , nicknames = The Motor City, Motown, Rena ...
and other car companies in the 1920s, who sought to minimize costs by integrating the production of cars and car parts, as exemplified in the
Ford River Rouge Complex The Ford River Rouge Complex (commonly known as the Rouge Complex, River Rouge, or The Rouge) is a Ford Motor Company automobile A car (or automobile) is a wheeled motor vehicle used for transportation. Most definitions of ''cars'' say that ...
. *A company tends toward forward vertical integration when it controls distribution centers and retailers where its products are sold. An example is a brewing company that owns and controls a number of bars or pubs.
Disintermediation Image:Safewaydeliverytruck.jpg, Although Webvan failed in its goal of disintermediating the North American supermarket industry, several supermarket chains (like Safeway Inc.) have launched their own delivery services to target the niche market to ...
is a form of vertical integration when purchasing departments take over the former role of wholesalers to source products.


Problems and benefits

There are internal and external society-wide gains and losses stemming from vertical integration, which vary according to the state of technology in the industries involved, roughly corresponding to the stages of the industry lifecycle. Static technology represents the simplest case, where the gains and losses have been studied extensively. A vertically integrated company usually fails when transactions within the market are too risky or the contracts to support these risks are too costly to administer, such as frequent transactions and a small number of buyers and sellers.


Internal gains

*Lower
transaction costs In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a Market (economics), market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companie ...
*Synchronization of
supply and demand In microeconomics, supply and demand is an economic model In economics, a model is a theory, theoretical construct representing economic wikt:process, processes by a set of Variable (mathematics), variables and a set of logical and/or quan ...

supply and demand
along the chain of products *Lower uncertainty and higher investment *Ability to
monopolize
monopolize
market throughout the chain by market foreclosure *Strategic independence (especially if important inputs are rare or highly volatile in price, such as
rare-earth metals The rare-earth elements, also called the rare-earth metals or (in context) rare-earth oxides, or the lanthanides (though yttrium and scandium are usually included as rare-earths) are a set of 17 nearly indistinguishable lustrous silvery-white s ...
).


Internal losses

*Higher monetary and organizational costs of switching to other suppliers/buyers *Weaker motivation for good performance at the start of the supply chain since sales are guaranteed and poor quality may be blended into other inputs at later manufacturing stages *Specific investment


Benefits to society

* Better opportunities for investment growth through reduced uncertainty * Local companies are often better positioned against foreign competition * Lower consumer prices by reducing markup from
intermediaries An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct contact and potential escalation of the issue. In la ...


Losses to society

*
Monopolization In United States antitrust law, monopolization is illegal. The main categories of prohibited behavior include exclusive dealing, price discrimination, refusing to supply an essential facility, product tying and predatory pricing. Monopolization is ...
of markets *Rigid
organizational structure An organizational structure defines how activities such as task allocation Task may refer to: * Task (project management), an activity that needs to be accomplished within a defined period of time or by a deadline * Task (computing), in computing ...
*Manipulation of prices (if market power is established) *Loss of tax revenue as fewer intermediary transactions are made


Selected examples


Birdseye

During a hunting trip American explorer and scientist
Clarence Birdseye Clarence Birdseye (December 9, 1886 – October 7, 1956) was an American inventor, entrepreneur, and naturalist, considered the founder of the modern frozen food industry. One of nine children, Birdseye grew up in Brooklyn before heading to Amherst ...
discovered the beneficial effects of " quick-freezing". For example, fish caught a few days previously that were kept in ice remained in perfect condition. In 1924, Clarence Birdseye patented the "Birdseye Plate Froster" and established the General Seafood Corporation. In 1929, Birdseye's company and the patent were bought by Postum Cereals and
Goldman Sachs Trading Corporation
Goldman Sachs Trading Corporation
. It was later known as
General Foods Image:GeneralFoodsOldLogo.png, 120px, General Foods's longest-lasting logo, used until 1985. General Foods Corporation was a company whose direct predecessor was established in the United States by C. W. Post, Charles William Post as the Postum Cer ...
. They kept the Birdseye name, which was split into two words (Birds eye) for use as a trademark. Birdseye was paid $20 million for the patents and $2 million for the assets. Birds Eye was one of the pioneers in the
frozen food 250px, A frozen processed foods aisle at a supermarket in Canada Freezing Freezing is a phase transition where a liquid turns into a solid when its temperature is lowered below its freezing point. In accordance with the internationally establis ...
industry. During these times, there was not a well-developed infrastructure to produce and sell frozen foods. Hence Birds Eye developed its own system by using vertical integration. Members of the supply chain, such as farmers and small food retailers, couldn't afford the high cost of equipment, so Birdseye provided it to them. Until now, Birds Eye has faded slowly because they have fixed costs associated with vertical integration, such as property, plants, and equipment that cannot be reduced significantly when production needs decrease. The Birds Eye company used vertical integration to create a larger organization structure with more levels of command. This produced a slower information processing rate, with the side effect of making the company so slow that it couldn't react quickly. Birds Eye didn't take advantage of the growth of supermarkets until ten years after the competition did. The already-developed infrastructure did not allow Birdseye to quickly react to market changes.


Alibaba

In order to increase profits and gain more market share,
Alibaba Ali Baba (character), Ali Baba is a character from the folk tale ''Ali Baba and the Forty Thieves''. Ali Baba may also refer to: Films * Ali Baba and the Forty Thieves (1902 film), ''Ali Baba and the Forty Thieves'' (1902 film), a French film di ...
, a China-based company, has implemented vertical integration deepening its company holdings to more than the e-commerce platform. Alibaba has built its leadership in the market by gradually acquiring complementary companies in a variety of industries including delivery and payments.


Steel and oil

One of the earliest, largest and most famous examples of vertical integration was the
Carnegie Steel Carnegie Steel Company was a steel Steel is an alloy of iron with typically a few tenths of a percent of carbon to improve its strength of materials, strength and fracture toughness, fracture resistance compared to iron. Many other eleme ...
company. The company controlled not only the mills where the
steel Steel is an alloy An alloy is an admixture of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, shows a lustrous appea ...

steel
was made, but also the mines where the
iron ore Iron ores are rocks A rock is any naturally occurring solid mass or aggregate of minerals or mineraloid matter. It is categorized by the minerals included, its Chemical compound, chemical composition and the way in which it is formed. Rock ...
was extracted, the coal mines that supplied the
coal Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata (Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country located mostly in the southern half o ...

coal
, the ships that transported the iron ore and the railroads that transported the coal to the factory, the coke ovens where the coal was coked, etc. The company focused heavily on developing talent internally from the bottom up, rather than importing it from other companies. Later, Carnegie established an institute of higher learning to teach the steel processes to the next generation.
Oil companies The following is a list of notable companies in the petroleum industry that are engaged in petroleum exploration and production. The list is in alphabetical order by continent and then by country. This list does not include companies only involved i ...
, both multinational (such as
ExxonMobil Exxon Mobil Corporation, stylized as ExxonMobil, is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D. Rockefeller's Standard Oil, and was formed on November 30, ...
,
Royal Dutch Shell Royal Dutch Shell plc (to be renamed Shell plc effective 24 January 2022), commonly known as Shell, is a British British may refer to: Peoples, culture, and language * British people The British people, or Britons, are the citizens of ...
,
ConocoPhillips The ConocoPhillips Company is an American multinational corporation engaged in hydrocarbon exploration and production. It is based in the Energy Corridor district of Houston, Texas. The company has operations in 15 countries and has production i ...
or
BP
BP
) and national (e.g.,
Petronas Petroliam Nasional Berhad (National Petroleum Limited), commonly known as Petronas, is a Malaysian petroleum, oil and natural gas, gas company. Established in 1974 and wholly owned by the Government of Malaysia, the corporation is vested with ...

Petronas
) often adopt a vertically integrated structure, meaning that they are active along the entire supply chain from locating deposits, drilling and extracting
crude oil Petroleum, also known as crude oil and oil, is a naturally occurring, yellowish-black liquid A liquid is a nearly incompressible In fluid mechanics or more generally continuum mechanics, incompressible flow (isochoric process, isocho ...
, transporting it around the world,
refining{{Unreferenced, date=December 2009 Refining (also perhaps called by the mathematical term affining) is the process of purification of a (1) substance or a (2) form. The term is usually used of a natural resource that is almost in a usable form, b ...
it into petroleum products such as
petrol/gasoline
petrol/gasoline
, to distributing the fuel to company-owned retail stations, for sale to consumers.
Standard Oil Standard Oil Co. was an American petroleum, oil-producing, transporting, refining, and marketing company. Established in 1870 by John D. Rockefeller and Henry Flagler as a corporation in Ohio, it was the largest oil refiner in the world at its h ...

Standard Oil
is a famous example of both horizontal and vertical integration, combining extraction, transport, refinement, wholesale distribution, and retail sales at company-owned gas stations.


Telecommunications and computing

Telephone companies in most of the 20th century, especially the largest (the
Bell System The Bell System was the system of companies, led by the Bell Telephone Company The Bell Telephone Company, a common law joint stock company, was organized in Boston, Massachusetts on July 9, 1877, by Alexander Graham Bell's father-in-law Gar ...
) were integrated, making their own
telephone A telephone is a telecommunications device that permits two or more users to conduct a conversation when they are too far apart to be heard directly. A telephone converts sound, typically and most efficiently the human voice, into electronic ...

telephone
s,
telephone cable Image:Phone pole3.jpg, Utility pole with electric lines (top) and telephone cables. A telephone line or telephone circuit (or just line or circuit industrywide) is a single-user telecommunication circuit, circuit on a telephone telecommunication ...

telephone cable
s,
telephone exchange manually connecting calls with cord pairs at a telephone switchboard A telephone exchange, telephone switch, or central office is a telecommunications system used in the public switched telephone network (PSTN) or in large enterprises. It intercon ...
equipment and other supplies.


Entertainment

From the early 1920s through the early 1950s, the American
motion picture A film, also called a movie, motion picture or moving picture, is a work of visual art used to simulate experiences that communicate ideas, stories, perceptions, feelings, beauty, or atmosphere through the use of moving images. These image ...
had evolved into an industry controlled by a few companies, a condition known as a "mature
oligopoly An oligopoly (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. Its population is approximately 10.7 mi ...
", as it was led by eight
major film studio Major film studios are production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and serv ...
s, the most powerful of which were the "Big Five" studios:
MGM Metro-Goldwyn-Mayer Studios Inc. (also known as Metro-Goldwyn-Mayer Pictures, initialized as MGM; often referred to as Metro; common metonym Metonymy () is a figure of speech in which a thing or concept is referred to by the name of someth ...

MGM
,
Warner Brothers Warner Bros. Entertainment Inc. (commonly known as Warner Bros. and abbreviated as WB) is an American diversified multinational mass media and entertainment conglomerate Conglomerate or conglomeration may refer to: * Conglomerate (company) * C ...
,
20th Century Fox 20th Century Studios, Inc. (also known as 20th Century for short, and nicknamed 20th Pictures, formerly Twentieth Century Fox Film Corporation) is an American film studio A film studio (also known as movie studio or simply studio) is a majo ...
,
Paramount Pictures Paramount Pictures Corporation (common metonym: Par) is an American film and television production company, production and Distribution (marketing), distribution company and a subsidiary of ViacomCBS. It is the fifth oldest film studio in the w ...

Paramount Pictures
, and
RKO RKO Pictures was an American film production and distribution company. In its original incarnation, as RKO Radio Pictures, Inc. (a subsidiary of Radio-Keith-Orpheum, aka: RKO) it was one of the Big FiveBig Five may refer to: Animals * the ...

RKO
. These studios were fully integrated, not only producing and distributing films, but also operating their own
movie theater . The picture the projector is displaying is the 1997 Universal Pictures Universal Pictures (legally Universal City Studios LLC, also known as Universal Studios, and formerly named Universal Film Manufacturing Company and Universal-Internati ...

movie theater
s; the "Little Three",
Universal Studios Universal Pictures (legally Universal City Studios LLC, also known as Universal Studios, or simply Universal; common metonym Metonymy () is a figure of speech in which a thing or concept is referred to by the name of something closely associat ...

Universal Studios
,
Columbia Pictures Columbia Pictures Industries, Inc. is an American film production Filmmaking (film production) is the process by which a Film, motion picture is #Production, produced. Filmmaking involves a number of complex and discrete stages, starting with ...
, and
United Artists United Artists Corporation (UA), currently doing business as United Artists Digital Studios, is an American digital production company. Founded in 1919 by D. W. Griffith, Charlie Chaplin, Mary Pickford, and Douglas Fairbanks, the studio w ...
, produced and distributed feature films but did not own theaters. The issue of vertical integration (also known as common ownership) has been the main focus of policy makers because of the possibility of anti-competitive behaviors affiliated with market influence. For example, in '' United States v. Paramount Pictures, Inc.'', the Supreme Court ordered the five vertically integrated studios to sell off their theater chains and all trade practices were prohibited (United States v. Paramount Pictures, Inc., 1948). The prevalence of vertical integration wholly predetermined the relationships between both studios and networks and modified criteria in financing. Networks began arranging content initiated by commonly owned studios and stipulated a portion of the syndication revenues in order for a show to gain a spot on the schedule if it was produced by a studio without common ownership. In response, the studios fundamentally changed the way they made movies and did business. Lacking the financial resources and contract talent they once controlled, the studios now relied on independent producers supplying some portion of the budget in exchange for distribution rights. Certain
media conglomerates A media conglomerate, media group, or media institution is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mix ...
may, in a similar manner, own television broadcasters (either over-the-air or on cable), production companies that produce content for their networks, and also own the services that distribute their content to viewers (such as television and internet service providers).
AT&T AT&T Inc. is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, a s ...

AT&T
,
Bell Canada Bell Canada (commonly referred to as Bell) is a Canadian Canadians (french: Canadiens) are people identified with the country of Canada. This connection may be residential, legal, historical or cultural. For most Canadians, many (or all) ...
,
Comcast Comcast Corporation (formerly known as American Cable Systems and Comcast Holdings)Before the AT&T AT&T Inc. is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multi ...
,
Sky plc Sky Group Limited is a British media and telecommunications Telecommunication is the transmission of information Information can be thought of as the resolution of uncertainty; it answers the question of "What an entity is" and thus ...
, and
Rogers Communications Rogers Communications Inc. is a Telecommunications in Canada, Canadian communications and media company operating primarily in the fields of mobile phone operator, wireless communications, cable television, telephony and Internet access, Intern ...
are vertically integrated in such a manneroperating media subsidiaries (such as
WarnerMedia Warner Media, LLC (Trade name, traded as WarnerMedia, but stylized as WarnerMedia; formerly known as Time Warner from 1990 to 2001 and again from 2003 to 2018; from 2001 to 2003, AOL Time Warner and from 1972 to 1990, Warner Communications) is ...

WarnerMedia
,
Bell Media Bell Media Inc. ( French: ) is a Canadian media conglomerate that is the mass media Mass media refers to a diverse array of media (communication), media technology, technologies that reach a large audience via mass communication. The techno ...

Bell Media
,
NBCUniversal NBCUniversal Media, LLC, traded as NBCUniversal (formerly known as NBC Universal, Inc. from 2004 to 2011), is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countr ...
, and
Rogers Media Rogers Media Inc., operating as A trade name, trading name, or business name is a pseudonym used by companies that do not operate under their registered company name. The term for this type of alternative name is a "fictitious" business name. Re ...
), and provide "
triple play In baseball Baseball is a bat-and-ball games, bat-and-ball game played between two opposing teams who take turns batting (baseball), batting and fielding. The game proceeds when a player on the fielding team (baseball), fielding team, ...
" services of television, internet, and phone service in some markets (such as
Bell Satellite TV Bell Satellite TV (french: Bell Télé; formerly known as Bell ExpressVu, Dish Network DISH Network Corporation is an American Multichannel television, television provider based in Englewood, Colorado. It is the owner of the Satellite televisi ...
/
Bell Internet Bell Internet, originally and frequently still called Sympatico, is the residential Internet service provider#REDIRECT Internet service provider {{Redirect category shell, 1= {{R from other capitalisation ... (ISP) division of BCE Inc. As o ...
,
Rogers Cable Rogers Cable Inc. is Canada Canada is a country in the northern part of North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean, Atlantic to the Pacific Ocean, Pacific and n ...
,
Xfinity Comcast Cable Communications, LLC, doing business as A trade name, trading name, or business name is a pseudonym A pseudonym () or alias () (originally: ψευδώνυμος in Greek) is a fictitious name that a person or group assumes for a ...
, and Sky's satellite TV and internet services). Additionally, Bell and Rogers own wireless providers,
Bell Mobility Bell Mobility Inc. is a Canadian wireless network operator and the division of Bell Canada which offers wireless Wireless communication (or just wireless, when the context allows) is the transfer of information between two or more points tha ...
and
Rogers Wireless Rogers Wireless Inc. is a Canadian wireless telephone company headquartered in Toronto, providing service nationally throughout Canada Canada is a country in the northern part of North America. Its Provinces and territories of Canada, ten ...
, while Comcast is partnered with
Verizon Wireless Verizon is an American Cellular network, wireless network operator that previously operated as a separate division of Verizon Communications under the name of Verizon Wireless. In a 2019 reorganization, Verizon moved the wireless products and ser ...
for an Xfinity-branded
MVNO A mobile virtual network operator (MVNO) is a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers. An MVNO enters into a business agreement with a mobile ...
. Similarly,
Sony , commonly known as Sony and stylized as SONY, is a Japanese multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multi ...

Sony
has media holdings through its
Sony Pictures Sony Pictures Entertainment Inc. (commonly known as Sony Pictures or SPE, and formerly known as Columbia Pictures Entertainment Inc.) is an American entertainment company that produces, acquires, and distributes filmed entertainment (theatrica ...
division, including film and television content, as well as television channels, but is also a manufacturer of
consumer electronics Consumer electronics or home electronics are electronic Electronic may refer to: *Electronics Electronics comprises the physics, engineering, technology and applications that deal with the emission, flow and control of electrons in vacuum ...
that can be used to play content from itself and others, including televisions, phones, and
PlayStation is a video game brand that consists of five home video game consoles, two Handheld game console, handhelds, a Home theater PC, media center, and a smartphone, as well as an online service and multiple magazines. The brand is produced by Sony ...

PlayStation
video game consoles. AT&T is the first ever vertical integration where a mobile phone company and a film studio company are under same umbrella.


Agriculture

Vertical integration through production and marketing contracts have also become the dominant model for
livestock Livestock are the domesticated Domestication is a sustained multi-generational relationship in which one group of organisms assumes a significant degree of influence over the reproduction and care of another group to secure a more predictable ...
production. Currently, 90% of poultry, 69% of hogs, and 29% of cattle are contractually produced through vertical integration.Paul Stokstad, Enforcing Environmental Law in an Unequal Market: The Case of Concentrated Animal Feeding Operations, 15 Mo. Envtl. L. & Pol’y Rev. 229, 234-36 (Spring 2008) The USDA supports vertical integration because it has increased food productivity. However, "... contractors receive a large share of farm receipts, formerly assumed to go to the operator's family". Under production contracts, growers raise animals owned by integrators. Farm contracts contain detailed conditions for growers, who are paid based on how efficiently they use feed, provided by the integrator, to raise the animals. The contract dictates how to construct the facilities, how to feed, house, and medicate the animals, and how to handle manure and dispose of carcasses. Generally, the contract also shields the integrator from liability. Jim Hightower, in his book, ''Eat Your Heart Out'', discusses this liability role enacted by large food companies. He finds that in many cases of agricultural vertical integration, the integrator ( food company) denies the farmer the right of entrepreneurship. This means that the farmer can only sell ''under'' and ''to'' the integrator. These restrictions on specified growth, Hightower argues, strips the selling and producing power of the farmer. The producer is ultimately limited by the established standards of the integrator. Yet, at the same time, the integrator still keeps the responsibility connected to the farmer. Hightower sees this as ownership without reliability. Under marketing contracts, growers agree in advance to sell their animals to integrators under an agreed price system. Generally, these contracts shield the integrator from liability for the grower's actions and the only negotiable item is a price.


Automotive industry

In the United States new automobiles can not be sold at dealerships owned by the same company that produced them but are protected by state franchise laws.


Eyewear

EssilorLuxottica, the company that merged with
Essilor Essilor International S.A. is a French-based international ophthalmic optics company that designs, manufactures and markets lenses to correct or protect eyesight. Its headquarters is in Charenton-le-Pont (near Paris), France. Essilor is respo ...
and
Luxottica Luxottica Group S.p.A. is an Italian eyewear Eyewear consists of items and accessories worn on or over the eyes, for fashion or adornment, protection against the environment, and to improve or enhance visual acuity. Image:Browline glasses.JPG, ...

Luxottica
, occupies up to 30% of the global market share as well as representing billions of pairs of lenses and frames sold annually. Before the merger, Luxottica also owned 80% of the market share of companies that produce corrective and protective
eyewear Eyewear consists of items and accessories worn on or over the eyes, for fashion or adornment, protection against the environment, and to improve or enhance visual acuity. Image:Browline glasses.JPG, Browline glasses. Common forms of eyewear includ ...
as well as owning many retailers, optical departments at
Target TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real-time gross settlement (RTGS) system for the Eurozone, and is available to non-Eurozone countries. It was developed by and is owned by the Eurosystem. ...
and
Sears Sears, Roebuck and Co., commonly known as Sears, is an American chain of department stores founded by Richard Warren Sears and Alvah Curtis Roebuck in 1892, and reincorporated by Richard Sears and Julius Rosenwald in 1906. Formerly based at ...

Sears
, and key eye insurance groups, such as EyeMed, many of which are already part of the now merged company.


Health care

In the United States, major vertical mergers have included
CVS Health CVS Health Corporation (previously CVS Corporation and CVS Caremark Corporation) is an American healthcare company that owns CVS Pharmacy CVS Pharmacy (stylized as CVSpharmacy, previously CVS/pharmacy) is an American retail corporation. O ...
's purchase of
Aetna Aetna Inc. () is an American managed health care The term managed care or managed healthcare is used in the United States to describe a group of activities intended to reduce the cost of providing for-profit health care and providing Health ins ...
, and
Cigna Cigna is an American worldwide health services organization based in Bloomfield, Connecticut. Its insurance subsidiaries are major providers of medical, dental, disability, life and accident insurance and related products and services, the majority ...
's purchase of
Express Scripts Express Scripts Holding Company is a pharmacy benefit management (PBM) organization. In 2017 it was the 22nd-largest company in the United States by total revenue as well as the largest pharmacy benefit management (PBM) organization in the United ...
.


General retail

Amazon.com Amazon.com, Inc. ( ) is an American multinational technology company based in Seattle, Washington, which focuses on e-commerce, cloud computing Cloud computing is the on-demand availability of computer system resources, especially d ...
has been criticized for being anti-competitive as both an owner and participant of its dominant online marketplace. In office products, Sycamore Partners owns both Staples, Inc., a major retailer, and Essendant, a dominant wholesaler.


Economic theory

In economic theory, vertical integration has been studied in the literature on incomplete contracts that was developed by Oliver Hart (economist), Oliver Hart and his coauthors. Consider a seller of an intermediate product that is used by a buyer to produce a final product. The intermediate product can only be produced with the help of specific physical assets (e.g., machines, buildings). Should the buyer own the assets (vertical integration) or should the seller own the assets (non-integration)? Suppose that today the parties have to make relationship-specific investments. Since today complete contracts cannot be written, the two parties will negotiate tomorrow about how to divide the returns of the investments. Since the owner is in a better bargaining position, he will have stronger incentives to invest. Hence, whether vertical integration is desirable or not depends on whose investments are more important. Hart's theory has been extended by several authors. For instance, DeMeza and Lockwood (1998) have studied different bargaining games, while Schmitz (2006) has introduced asymmetric information into the incomplete contracting setup. In these extended models, vertical integration can sometimes be optimal even if only the seller has to make an investment decision.


References


Bibliography

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Further reading

* Bramwell G. Rudd, 2014, "Courtaulds and the Hosiery & Knitwear Industry," Lancaster, PA:Carnegie. * Joseph R. Conlin, 2007, "Vertical Integration," in ''The American Past: A Survey of American History'', p. 457, Belmont, CA:Thompson Wadsworth. * Martin K. Perry, 1988, "Vertical Integration: Determinants and Effects," Chapter 4 in ''Handbook of Industrial Organization,'' North Holland. {{DEFAULTSORT:Vertical Integration Market structure Business terms Supply chain management Mass production Marketing strategy