Editing Vertical integration (section)

==Selected examples==
The following are several case studies of vertical integration in play. Many examples center around American industries, where major companies like General Foods, [[Carnegie Steel Company]], the [[Bell System]], [[Apple Inc.|Apple]], the U.S. entertainment studios, the U.S. meat industry, [[Ford Motor Company]], [[CVS Pharmacy|CVS]], and [[Amazon (company)|Amazon]] demonstrate vertical merging. Other examples like Alibaba and [[EssilorLuxottica]] cover vertical integration in other nations.

=== Birdseye ===
Birdseye has been used as a classic example of vertical integration in business school case studies. During a hunting trip American explorer and scientist [[Clarence Birdseye]] discovered the beneficial effects of "[[Flash freezing|quick-freezing]]". For example, fish caught a few days previously that were kept in ice remained in perfect condition.

In 1924, Clarence Birdseye patented the "Birdseye Plate Froster" and established the General Seafood Corporation. In 1929, Birdseye's company and the patent were bought by [[Post Consumer Brands|Postum Cereals]] and [[Goldman Sachs|Goldman Sachs Trading Corporation]]. It was later known as [[General Foods]]. They kept the Birdseye name, which was split into two words (Birds eye) for use as a trademark. Birdseye was paid $20 million for the patents and $2 million for the assets.

Birds Eye was one of the pioneers in the [[frozen food]] industry. During these times, there was not a well-developed infrastructure to produce and sell frozen foods. Hence Birds Eye developed its own system by using vertical integration. Members of the supply chain, such as farmers and small food retailers, could not afford the high cost of equipment, so Birdseye provided it to them.

Until now, Birds Eye has faded slowly{{Citation needed|date=October 2021}} because they have fixed costs associated with vertical integration, such as property, plants, and equipment that cannot be reduced significantly when production needs decrease. The Birds Eye company used vertical integration to create a larger organization structure with more levels of command.<ref>{{Cite web |title=Birds Eye and the U.K. Frozen Food Industry (A) - Case - Faculty & Research - Harvard Business School |url=https://www.hbs.edu/faculty/Pages/item.aspx?num=23158 |access-date=2025-05-20 |website=www.hbs.edu}}</ref> This produced a slower information processing rate, with the side effect of making the company so slow that it could not react quickly. Birds Eye did not take advantage of the growth of supermarkets until ten years after the competition did. The already-developed infrastructure did not allow Birdseye to quickly react to market changes.<ref>{{Cite journal |last1=Geroski |first1=Paul |last2=Vlassopoulos |first2=Tassos |date=1991 |title=The Rise and Fall of a Market Leader: Frozen Foods in the U.K. |url=https://www.jstor.org/stable/2486482 |journal=Strategic Management Journal |volume=12 |issue=6 |pages=467–478 |doi=10.1002/smj.4250120607 |jstor=2486482 |issn=0143-2095}}</ref>

===Big tech===
[[Big Tech]] companies such as [[Alphabet Inc.|Alphabet]], [[Amazon (company)|Amazon]], [[Baidu]] and [[Alibaba]] have been noted as examples of both vertically and horizontally integrated companies.<ref>{{Cite web |last=Hylden |first=George |title=The New Face of Business Model Innovation |url=https://cmp.smu.edu.sg/ami/issues/volume-03-issue-1/industry-watch/new-face-business-model-innovation |access-date=2025-05-20 |website=cmp.smu.edu.sg}}</ref>

In order to increase profits and gain more market share, Alibaba, has implemented vertical integration deepening its company holdings to more than the e-commerce platform. Alibaba has built its leadership in the market by gradually acquiring complementary companies in a variety of industries including delivery and payments. For example, Alibaba is the owner of logistics operator [[Cainiao]], which handles warehousing and last-mile delivery for products sold through Alibaba's platforms.<ref>{{Cite web |last= |first= |date=2019-02-04 |title=JD vs Alibaba in the last mile: what's happening behind the Great Wall |url=https://www.parcelandpostaltechnologyinternational.com/analysis/jd-vs-alibaba-in-the-last-mile-whats-happening-behind-the-great-wall.html |access-date=2025-05-20 |website=Parcel and Postal Technology International |language=en-GB}}</ref> It also operates Alipay, a payment platform for its merchants.<ref>{{Cite thesis |last=Jia |first=Minshu |title=Analyzing the Chinese online-to- offline business dynamics |date=2016 |publisher=[[Aalto University]] |url=https://epub.lib.aalto.fi/en/ethesis/pdf/14425/hse_ethesis_14425.pdf}}</ref>

===Steel and oil===
One of the earliest, largest and most famous examples of vertical integration was the [[Carnegie Steel]] company. The company controlled not only the mills where the [[steel]] was made, but also the mines where the [[iron ore]] was extracted, the coal mines that supplied the [[coal]], the ships that transported the iron ore and the railroads that transported the coal to the factory, the [[coke (fuel)|coke]] ovens where the coal was coked, etc. The company focused heavily on developing talent internally from the bottom up, rather than importing it from other companies.<ref>Folsom, Burton ''The Myth of the Robber Barons'' 5th edition. 2007. pg. 65. {{ISBN|978-0963020314}}. "only we can develop ''ability'' and hold it in our service. Every year should be marked by the promotion of one or more of our young men."</ref>{{full citation needed|date=April 2015}} Later, Carnegie established [[Carnegie Mellon University|an institute]] of higher learning to teach the steel processes to the next generation.

[[Petroleum industry|Oil companies]], both multinational (such as [[ExxonMobil]], [[Shell plc|Shell]], [[ConocoPhillips]] or [[BP]]) and national (e.g., [[Petronas]]), often adopt a vertically integrated structure, meaning that they are active along the entire supply chain from [[Hydrocarbon exploration and licensing policy, 2016|locating deposits]], drilling and extracting [[crude oil]], transporting it around the world, [[Oil refinery|refining]] it into petroleum products such as [[gasoline|petrol/gasoline]], to distributing the fuel to company-owned retail stations, for sale to consumers.{{citation needed|date=April 2015}} [[Standard Oil]] is a famous example of both horizontal and vertical integration, combining extraction, transport, refinement, wholesale distribution, and retail sales at company-owned gas stations.

===Telecommunications and computing===
Telephone companies in most of the 20th century, especially the largest (the [[Bell System]]), were integrated, making their own [[telephone]]s, [[telephone cable]]s, [[telephone exchange]] equipment and other supplies.<ref>{{cite web|url=https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?referer=https://en.wikipedia.org/&httpsredir=1&article=3641&context=clr |title=Vertical Integration and the Communication Equipment Industry: Alternatives for Public Policy |last1=Irwin |first1=Manley|last2=McKee|first2=Robert|date=February 3, 1968 |website=scholarship.law.cornell.edu |access-date=2019-06-02}}</ref> The Bell System is an example of an industry in which without vertical integration, would not be able to develop efficiently. In order to implement a telecommunications system that connected cities across a nation reliably, vertical integration was called upon. This strategic move ensured that the wiring, manufacture, and management of the system was consistent and functional across a state.<ref>{{Cite journal |last=Alchian |first=Armen A. |date=1995 |title=Vertical Integration and Regulation in the Telephone Industry |url=https://www.jstor.org/stable/2487925 |journal=Managerial and Decision Economics |volume=16 |issue=4 |pages=323–326 |doi=10.1002/mde.4090160406 |jstor=2487925 |issn=0143-6570|url-access=subscription }}</ref>

===Apple===
{{See also|Closed platform}}
[[Apple Inc.|Apple]] has used the vertical integration strategy for 35 years. Apple centered its business strategy on its own development of integrated hardware, software, and latterly services. They design most of their products in-house, and do not allow their hardware and operating system to be licensed out, which allows the company to apply its company vision to its products.

Implementing a vertically integrated strategy has helped Apple become a leading platform company; integrating their software (through [[application programming interface|API]]s for third-party application developers) with their own hardware, across all the devices and services they offer.

Another major success of Apple's, is the forward integration with their retail stores, allowing them to sell their products directly to customers (helping customers to buy and use Apple's products and services), additionally helping them to control the prices of their products, and thus to maintain high-profit margins when they do.<ref>{{cite web|last1=Claici|first1=Claici|last2=Basalisco|first2=Bruno|title=The Economic Rationale For Vertical Integration In The Tech Sector|url=https://www.copenhageneconomics.com/dyn/resources/Publication/publicationPDF/0/550/1606320780/copenhagen-economics-the-economic-rationale-for-vertical-integration-in-tech.pdf|publisher=Copenhagen Economics|access-date=May 1, 2022}}</ref> Apple is also known as one of the world's leading "orchestrators" as they exert control over the entire value chain, but do not do everything in-house (e.g. assembly of [[iPhone]]s by manufacturing partner [[Foxconn]]).<ref name="Apple FC info 1">{{cite book|title=Winning strategies in a deconstructing world|last=Bresser|first=Rudi K. F. (Hg.)|publisher=Wiley|year=2000|isbn=0471496871|location=Chichester|pages=6–9}}</ref>

===Entertainment===
From the early 1920s through the early 1950s, the American [[motion picture]] had evolved into an industry controlled by a few companies, a condition known as a "mature [[oligopoly]]", as it was led by eight [[major film studio]]s, the most powerful of which were the "Big Five" studios: [[MGM]], [[Warner Brothers]], [[20th Century Fox]], [[Paramount Pictures]], and [[RKO]].<ref name="Alberti2014">{{cite book|author=John Alberti|title=Screen Ages: A Survey of American Cinema|url=https://books.google.com/books?id=J06cBQAAQBAJ&pg=PA108|date=27 November 2014|publisher=Routledge|isbn=978-1-317-65028-7|pages=108–}}</ref> These studios were fully integrated, not only producing and distributing films, but also operating their own [[movie theater]]s; the "Little Three", [[Universal Pictures|Universal Studios]], [[Columbia Pictures]], and [[United Artists]], produced and distributed feature films but did not own theaters.{{citation needed|date=April 2015}}

The issue of vertical integration (also known as common ownership) has been the main focus of policy makers because of the possibility of anti-competitive behaviors affiliated with market influence. For example, in ''[[United States v. Paramount Pictures, Inc.]]'', the Supreme Court ordered the five vertically integrated studios to sell off their theater chains and all trade practices were prohibited (''United States v. Paramount Pictures'', Inc., 1948).<ref>{{cite journal | last1 = Oba | first1 = Goro | last2 = Chan-Olmstead | first2 = Sylvia | year = 2006 | title = Self-Dealing or Market Transaction?: An Exploratory Study of Vertical Integration in the U.S. Television Syndication Market | journal = Journal of Media Economics | volume = 19 | issue = 2| pages = 99–118 | doi=10.1207/s15327736me1902_2| s2cid = 153386365 }}</ref> The prevalence of vertical integration wholly predetermined the relationships between both studios and networks{{Clarify|date=September 2012}} and modified criteria in financing. Networks began arranging content initiated by commonly owned studios and stipulated a portion of the syndication revenues in order for a show to gain a spot on the schedule if it was produced by a studio without common ownership.<ref>[[Amanda D. Lotz|Lotz, Amanda D.]] (2007) "The Television Will Be Revolutionized". New York, NY: New York University Press. p.87</ref> In response, the studios fundamentally changed the way they made movies and did business. Lacking the financial resources and contract talent they once controlled, the studios now relied on independent producers supplying some portion of the budget in exchange for distribution rights.<ref>{{cite book|author1=McDonald, P.|author2=Wasko, J.|name-list-style=amp|title=The Contemporary Hollywood Film Industry|year=2008|publisher=Blackwell Publishing Ltd.|location=Australia|isbn=9781405133876|pages=[https://archive.org/details/contemporaryholl0000unse/page/14 14–17]|url=https://archive.org/details/contemporaryholl0000unse/page/14}}</ref>

Certain [[media conglomerates]] may, in a similar manner, own television broadcasters (either over-the-air or on cable), production companies that produce content for their networks, and also own the services that distribute their content to viewers (such as television and internet service providers). [[AT&T]], [[Bell Canada]], [[Comcast]], [[Sky plc]], and [[Rogers Communications]] are vertically integrated in such a manner{{emdash}}operating media subsidiaries (such as [[WarnerMedia]], [[Bell Media]], [[NBCUniversal]], and [[Rogers Media]]), and provide "[[Triple play (telecommunications)|triple play]]" services of television, internet, and phone service in some markets (such as [[Bell Satellite TV]]/[[Bell Internet]], [[Rogers Cable]], [[Xfinity]], and Sky's satellite TV and internet services). Additionally, Bell and Rogers own wireless providers, [[Bell Mobility]] and [[Rogers Wireless]], while Comcast is partnered with [[Verizon Wireless]] for an Xfinity-branded [[mobile virtual network operator|MVNO]]. Similarly, [[Sony]] has media holdings through its [[Sony Pictures]] division, including film and television content, as well as television channels, but is also a manufacturer of [[consumer electronic]]s that can be used to play content from itself and others, including televisions, phones, and [[PlayStation]] video game consoles. AT&T is the first ever vertical integration where a mobile phone company and a film studio company are under same umbrella.

===Agriculture===
{{Further | Meat industry}}
Vertical integration through production and marketing contracts have also become the dominant model for [[livestock]] production. Currently, 90% of poultry, 69% of hogs, and 29% of cattle are contractually produced through vertical integration.<ref name="livestock">Paul Stokstad, Enforcing Environmental Law in an Unequal Market: The Case of Concentrated Animal Feeding Operations, 15 Mo. Envtl. L. & Pol’y Rev. 229, 234-36 (Spring 2008)</ref> The USDA supports vertical integration because it has increased food productivity. However, "... contractors receive a large share of farm receipts, formerly assumed to go to the operator's family".<ref>{{cite web |url=http://www.ers.usda.gov/publications/aer-agricultural-economic-report/aer747.aspx#.UpaBmsRONqU |title=USDA ERS - Farmers' Use of Marketing and Production Contracts |publisher=Ers.usda.gov |access-date=2015-04-24 |archive-date=24 April 2015 |archive-url=https://web.archive.org/web/20150424114144/http://www.ers.usda.gov/publications/aer-agricultural-economic-report/aer747.aspx#.UpaBmsRONqU |url-status=dead }}</ref>

Under production contracts, growers raise animals owned by integrators. Farm contracts contain detailed conditions for growers, who are paid based on how efficiently they use feed, provided by the integrator, to raise the animals. The contract dictates how to construct the facilities, how to feed, house, and medicate the animals, and how to handle manure and dispose of carcasses. Generally, the contract also shields the integrator from liability.<ref name="livestock" /> [[Jim Hightower]], in his book, ''Eat Your Heart Out'',<ref>{{cite book|url=https://books.google.com/books?id=qaxIAAAAYAAJ |title=Eat Your Heart Out: Food Profiteering in America - Jim Hightower - Google Books |date=2009-10-21 |access-date=2015-04-24|isbn=9780517524541 |last1=Hightower |first1=Jim |publisher=Crown Publishers }}</ref> discusses this liability role enacted by large food companies. He finds that in many cases of agricultural vertical integration, the integrator ([[food company]]) denies the farmer the right of entrepreneurship. This means that the farmer can only sell ''under'' and ''to'' the integrator. These restrictions on specified growth, Hightower argues, strips the selling and producing power of the farmer. The producer is ultimately limited by the established standards of the integrator. Yet, at the same time, the integrator still keeps the responsibility connected to the farmer. Hightower sees this as ownership without reliability.<ref>Hightower, Jim. ''Eat Your Heart Out'', 1975, Crown Publishing. pg 162-168, {{ISBN|978-0517524541}}</ref>

Under marketing contracts, growers agree in advance to sell their animals to integrators under an agreed price system. Generally, these contracts shield the integrator from liability for the grower's actions and the only negotiable item is a price.<ref name="livestock" />

===Eyewear===
[[EssilorLuxottica]], the company that merged with [[Essilor]] and [[Luxottica]], occupies up to 30% of the global market share as well as representing billions of pairs of lenses and frames sold annually. Before the merger, Luxottica also owned 80% of the market share of companies that produce corrective and protective [[eyewear]] as well as owning many retailers, optical departments at [[Target Corporation|Target]] and [[Sears]], and key eye insurance groups, such as [[EyeMed]], many of which are already part of the now merged company.<ref name="SIXTYMINUTES2012">{{cite news|title=Sticker shock: Why are glasses so expensive?|url=http://www.cbsnews.com/8301-18560_162-57527151/sticker-shock-why-are-glasses-so-expensive/|archive-url=https://web.archive.org/web/20121008062032/http://www.cbsnews.com/8301-18560_162-57527151/sticker-shock-why-are-glasses-so-expensive/|url-status=dead|archive-date=8 October 2012|newspaper=[[60 Minutes]]|publisher=[[CBS News]]|date=October 7, 2012|access-date=October 19, 2012}}</ref><ref>{{cite magazine | last = Goodman | first = Andrew | date = July 16, 2014 | title = There's More to Ray-Ban and Oakley Than Meets the Eye | url = https://www.forbes.com/sites/agoodman/2014/07/16/theres-more-to-ray-ban-and-oakley-than-meets-the-eye/ | magazine = Forbes | access-date = October 1, 2016}}</ref><ref>{{cite magazine | last = Swanson | first = Ana | date = September 10, 2014 | title = Meet the Four-Eyed, Eight-Tentacled Monopoly That is Making Your Glasses So Expensive | url = https://www.forbes.com/sites/anaswanson/2014/09/10/meet-the-four-eyed-eight-tentacled-monopoly-that-is-making-your-glasses-so-expensive/#2adff9764dc8 | magazine = Forbes | access-date = October 1, 2016}}</ref><ref>{{Cite news|url=https://www.theguardian.com/news/2018/may/10/the-invisible-power-of-big-glasses-eyewear-industry-essilor-luxottica|title=The spectacular power of Big Lens &#124; The long read|first=Sam|last=Knight|newspaper=The Guardian |date=10 May 2018|via=www.theguardian.com}}</ref>

===Health care===
Within healthcare systems, horizontal integration is generally much more prominent. However, in the United States, major vertical mergers have included [[CVS Health]]'s purchase of [[Aetna]], and [[Cigna]]'s purchase of [[Express Scripts]]. The integration of CVS Health and Aetna resulted in the combination of one of the nation's largest health insurance companies with a pharmaceutical company seen all across the U.S. The vertical merge allowed CVS-Aetna to regulate more of the healthcare and delivery chain and gave them the ability to provide higher quality care to consumers. One of the most significant advantages to this integration is the reduction in costs for healthcare.<ref>{{Cite journal |last1=Kish |first1=Natalie |last2=Bhagat |first2=Maulik |date=2018-02-26 |title=CVS-Aetna: A blockbuster in vertical integration |journal=Chain Drug Review |volume=40 |issue=4 |pages=17–18}}</ref>{{citation needed|date=October 2024}}

=== Electric utilities ===
Before a wave of [[deregulation]] at the end of 20th century, most electric utilities were vertically integrated and provided [[electric generation]], [[Electric power transmission|transmission]], [[Electric power distribution|distribution]], and sales. These were not just conglomerates with a common accounting department: there was just one [[profit center]] in sales, and costs of transmission and distribution were not separated. Partial deregulation in the US in 1978 ([[PURPA]]) forced the utilities to buy electricity outside if the rates were competitive; this gave rise to [[independent power producer]]s. The other deviation from the vertical integration model were [[local distribution company|local distribution companies]] in some towns and regions. In the US 250 vertically integrated companies provided 85% of electrical generation.{{sfn|Willis|Philipson|2018|pp=12-14}} As of 2022, this "public utility" model was still utilized in some US states, mostly in the [[Mountain states|Mountain West]], [[Great Plains]], and [[Southeastern United States|Southeast]].{{sfn|Aagaard|Kleit|2022|p=84}}