Growth by Vertical Integration

Abstract

Vertical integration is widespread. Nearly all firms engage in more than one stage of the same productive process. An example is the steel industry, where the larger firms embrace all stages of production: mining, shipping ores, blast furnaces, rough rolling, finished rolling, and fabricated products. In all industries most firms are vertically integrated to some degree. However, it is an observed fact that in the same industry some firms have a high degree of integration, while their rivals have much less integrated operations. The reason for this is that most of the advantages of integration may be attained by other means, such as the exercising of monopsony power, signing of long-term contracts, adjacent location, or other devices between separate companies.