Exam 14: Vertical Integration and the Scope of the Firm

In the media industry, the benefits of vertical integration are the focus of a debate, because:

The design of a vertical relationship contract between partners should include the allocation of risk, and incentives structured so as to discourage adversarial behaviour.

Independent suppliers and customers may be unwilling to do business with a vertically integrated firm, because:

How is vertical integration linked with the two forms of economic organization?

Firms are essential for organising production of goods and services

Can-making and caning products industries, oil refining and petrochemical production, steel and steel strip production illustrate:

Which factors explain downsizing and refocusing?

In recent years, the trend has been:

The key concepts of economies of scope, resources and capabilities, transaction costs, and cost and complexity are:

A long-term procurement contract helps to avoid the risks of opportunism, and should reduce procurement costs

Product scope, international scope, and vertical scope are part of corporate level strategy decisions

Low-powered incentives tend to be based on internal mechanisms, whereas high-powered incentives relate to profit or loss

If no acquisition takes place, is there vertical integration?

The classic justification of vertical integration relies on the conviction that:

Administrative costs are:

In order to conduct economic activity efficiently, firms, rather than individuals are:

How can one assess the efficiency of the administrative costs of internalization vs. transactions costs?

The two main forms of economic organization are:

How can small businesses benefit from vertical integration?

Until the last quarter of the 20th century, the prevailing wisdom favored a strategy of greater vertical integration, whatever the industry