In: Economics
What is the underlying difference between vertical control and vertical integration? In your answer describe the concepts of vertical control and vertical integration.
Step 1:
Concepts-
Vertical integration: It is a strategy that is
used by the company to gain control over suppliers or distributors
to increase the power of firms in the marketplace, decreasing the
cost of transactions and secure supplies and channels of
distribution. It is used for the development of the corporate-level
strategy.
Horizontal integration: It is a process used to increase the production of goods or services in the same part of the supply chain. It is in contrast to vertical integration.
Step 2:
Differences-
i). Horizontal integration takes place between two firms having the
same product and production level.
Vertical integration operates in different stages of the production
process of firms.
ii). Horizontal integration has the aim of increasing the size of
business and scale of production.
Vertical integration has to focus on the strength and smoothening
of its production and distribution process.
iii). Horizontal integration has the advantage of eliminating
competition between firms which extends the market share of the
company.
Vertical integration leads to reducing the cost of production and
wastage.
iv). Horizontal integration helps in acquiring control over the
market.
Vertical integration is used for gaining control of the whole
industry.