Vertical Integration and Different Inputs

Vertical integration decisions, which determine the boundaries of the firm, are among the largest investment decisions firms make and can have a major influence on their success. In some cases, the failure to integrate can result in the inability to obtain the desired inputs at reasonable prices. In other instances, an integrated firm may be severely affected by economic fluctuations due to overheads that the unintegrated firms do not bear. Research on vertical integration has stressed the balance between the inflexibility of integration and the cost reduction and/or potential increase in market power that integration may allow.