3.1 - Integration: Vertical Backwards

Question 1

What is vertical backwards integration?

Answer 1

Merger with firm in same industry but at lesser stage in production chain

Question 2

What are the specific advantages of vertical backwards integration?

Answer 2

Increased control
Guarantees component supplier
Can’t be held to ransom by supply costs
Rising profits due to improved cost control
Retailer can cater to changing consumer needs faster

Question 3

What are the specific disadvantages of vertical backwards integration?

Answer 3

Lack of supplier competition
Supplier may become complacent + inefficient
Higher total costs

Question 4

How does vertical backwards integration encourage rising profits?

Answer 4

Improved cost control
Authority over supplier, dictates supply costs
Suppliers incentivised to sell resources at satisfactory price points

Question 5

How does vertical backwards integration allow a firm to cater to consumer needs quickly?

Answer 5

Dictates production
Easy to adapt output