Vertical Integration: Advantages and Disadvantages

Readers Question assess advantages and disadvantages for vertical integration

Vertical integration occurs when two firms at different stages of production merge.

Example of vertical integration.

Brewery merging with chain of pubs

Software supplier merging with Computer firm

Coffer grower merging with coffee retailer such as Nescafe

Advantages of Mergers

See: Advantages of Mergers 

See: disadvantages of mergers 

Vertical mergers will have less economies of scale because most of the production is at different stages of production. There is still scope for monopoly power. Also a vertical merger can lead to monoposony power. e.g. Nescafe have been accused of paying a low price to farmers.