Literature Review Backward Integration

1. Literature Review Vertical integrating
2.1 Definitions of Vertical Integration

In describing competitive strategy Michael Porter (Porter M, 1980, p.300) strongly suggested that vertical consolidation was one and only(a) of the most significant contributing areas. In his translation he states that vertical integration is the combination of technologically unmistakable production, distribution, selling and/or other economic processes within the verge of a single firm. Figure 2 is shown on a lower floor in order to give some clarity to this interpretation and also to highlight these aspects within the defined market.

Figure 2 Dimensions of Integration; PMC Industry specific

In the work by Harrigan, (1986, p.536) the comment of vertical integration goes beyond simple value-added ratios and is .. a diversification strategy that requires conscious management of potential synergies.
2.2 Main soundbox of Literature Review

Economic research literature concerning Vertical Integration tends to focus on the foreclosure effect and specifically the issue environ the strategy whereby it raises the rivals costs. This is when a firm is effectively removed from the upriver market; the remaining firms will find it easier to raise prices thence increasing the downstream costs of the rival firms. Avenel (2008, P.



247) argues that whilst this can be true when the number of upstream firms is low that the effect is remove as soon as on that point are trey (identical) upstream firm, constant returns to scale and Bertrand competition. Avenel (ibid) further suggests that this is one possible reason that many markets will likely hurl more than two competing firms, and why there is limited experimental evidence (Rosengren and Meehan, 1994) of foreclosure.

Whilst Vertical Integration has been studied from different perspectives there are two important papers (Heavner, 2004 and Harrigan, 1986) which have help the understanding of how it impacts on the competitive environment. Heavner (2004)...If you want to get a full essay, order it on our website: Ordercustompaper.com



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