The theory of vertical integration is the theory's intersection of the firm, the theories of markets and contracts. Thus, the competitive advantage has developed from several different perspectives. A firm can be described as vertically integrated if it includes two single output production processes in which either the entire output of the upstream process is employed as part or all of the quantity of one intermediate input into the downstream process. However, both characteristics rule out the case in which most of the output of the upstream process is employed as most of the input in downstream process. This case is described as "partial" vertical integration because some of the output of the upstream process is sold to other buyers and some of the intermediate input. Thus, the vertical integration concept is the elimination of contractual or market exchanges, and the substitution of internal exchanges within the …show more content…
A corporate that carry out this type of strategy usually acquires or mergers another company that is in the same production stage. For example, Disney merging with Pixar in movie production, Exxon with Mobile in oil production, distribution and refining or the infamous Daimler Benz and Chrysler consolidation in car retailing, developing and manufacturing. The purpose of horizontal integration is to let the company grow in size, achieve economies of scale, increase product differentiation, access new markets or reduce competition. When many firms follow this strategy in the same industry, it leads to industry consolidation. Horizontal integration can occur in a form of acquisitions, mergers or hostile takeovers. Acquisition is the purchase of another company. Merger is the joining of two similar sizes, independent companies. Hostile takeover is the acquisition of the company, which does not want to be