VERTICAL INTEGRATION Definition: backward and forward integration Measurement and extent Reasons for integration - economic - technical - control - historical Significance in Irish context Disintegration and quasi-integration

MAKE OR BUY The decision of a a firm to make a product itself or to buy it from subsidiaries is known as a make or buy decision - e.g. whether to develop its own source of raw materials, provide its own shipping services, or operate its own retail site Close “to make” integrated firms can use wholly owned subsidiaries Close “to buy” firms can enter into a long-term contract In between are a range of options - tapered integration - strategic alliances - joint ventures - close co-operation

Peter Collins

TRANSACTIONS COSTS First devised by Robin Coase in “The Nature of the Form” pointing to the fact that there are costs associated with market activity that can be removed through internal centralised control Transactions costs include the time and expense of negotiating, writing and enforcing contracts and arise when one or more parties to a transaction act opportunistically for private gain Some transaction cost concepts - relationship-specific assets taking at least four forms site specificity physical asset specificity dedicated assets human asset specificity - quasi-rents - the hold-up problem

ECONOMIC ADVANTAGES OF VERTICAL INTEGRATION Eliminates transactions costs Eliminates excess profit margins Reduces business risks Removes uncertainty due to fixed price contracts Can take advantage of complementary activities Increased communications and control Development of market Disintegration Effects on Competition Overseas Firms - importance of vertical inetgration - Tax System and transfer pricing - Repatriation of Profits