Backward Integration / Merger  

Definition of Backward integration: Backward integration is when a firm buys a company who previously supplied raw materials to the firm. It is a type of vertical integration, but specifically refers to the merging with firms who used to supply the firm.

Example of Backward integration:

  • A car firm buys the company who used to sell it tyres for its cars
  • A coffee retailer like nescafe mergers with coffee growers thereby controlling supply of coffee beans

Backward integration may be beneficial if it helps secure a reliable source of supplies. It will be harmful if it leads to increased monopoly power and new competitors have difficulty accessing raw materials.

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