Question

You have become the owner-manager of a small local bubble tea seller that has outlets in 10 prime shopping-center locations across Singapore. Given the structure of this market is monopolistic competition, you are considering vertical and horizontal integration. Using the theory of the optimal boundary of the firm, discuss the make-or-buy decision as well as the scope for horizontal integration and diversification of your firm. What stages of the vertical chain should you consider conducting inhouse? What other horizontal markets may you integrate into?

Answer 1

Here the case is the owner and manager of a small local bubble tea seller that has outlets in 10 prime shopping- centre locations across Singapore.
The market structure discussed here is Monopolistic completion. It is that type of market where large number of buyers and sellers are there and they are selling close substitutes of the commodities at a constant price.
So here two conditions are there one is vertical integration and another one is horizontal integration.
Horizontal integration means the two parallel companies working on the same ground with the competitive products.
Vertical integration means the process of purchase of raw materials from the level of consumer satisfaction.
In this case when company is planning to make a decision of buy or selling of the goods then in this case company relies on the local suppliers of the raw materials and the sale of the produced goods with the help of local retailers.
In the horizontal integration it is a good idea to tie up with the local vendors for the fast networking and for the fast strategy to capture the market.
In the decision of vertical integration it is beneficial to set up local purchases of intermediate goods and raw materials.
The benefits are to secure the market very easily and to purchase the goods at a low cost.
The optimal boundary of the firms helps in deciding the stage of limit purchasing and selling.