Editing Vertical integration (section)

{{Short description|When a company owns its supply chain}}
{{Use American English|date = February 2019}}
{{Use dmy dates|date = February 2019}}
[[File:Integration in English.svg|thumb|right|A diagram illustrating horizontal integration and contrasting it with vertical integration]]
{{Marketing}}
In [[microeconomics]], [[management]] and [[international political economy]], '''vertical integration''', also referred to as vertical consolidation, is an arrangement in which the [[supply chain]] of a company is integrated and owned by that company. Usually each member of the supply chain produces a different [[Product (business)|product]] or (market-specific) service, and the products combine to satisfy a common need.<ref>{{cite journal |last1=Perry |first1=Martin K. |title=Vertical integration: Determinants and effects |journal=Handbook of Industrial Organization |date=1989 |volume=1 |pages=183–255 |doi=10.1016/S1573-448X(89)01007-1 |url=https://www.sciencedirect.com/science/article/abs/pii/S1573448X89010071 |access-date=22 October 2022|url-access=subscription }}</ref> It contrasts with [[horizontal integration]], wherein a company produces several items that are related to one another. Vertical integration has also described [[management style]]s that bring large portions of the supply chain not only under a common ownership but also into one [[corporation]] (as in the 1920s when the [[Ford River Rouge complex]] began making much of its own steel rather than buying it from suppliers).

Vertical integration can be desirable because it secures supplies needed by the firm to produce its product and the market needed to sell the product, but it can become undesirable when a firm's actions become anti-competitive and impede free competition in an open marketplace. Vertical integration is one method of avoiding the [[hold-up problem]]. A monopoly produced through vertical integration is called a ''vertical monopoly'': ''vertical'' in a supply chain measures a firm's distance from the final consumers; for example, a firm that sells directly to the consumers has a vertical position of 0, a firm that supplies to this firm has a vertical position of 1, and so on.<ref>{{Cite journal |last1=Gofman |first1=Michael |last2=Wu |first2=Youchang |date=2022-01-01 |title=Trade credit and profitability in production networks |url=https://www.sciencedirect.com/science/article/pii/S0304405X21002488 |journal=Journal of Financial Economics |language=en |volume=143 |issue=1 |pages=593–618 |doi=10.1016/j.jfineco.2021.05.054 |issn=0304-405X|url-access=subscription }}</ref>