Market Integration

MARKET
INTEGRATION
Market
▪ is a medium that allows buyers
and sellers of a specific good
or service to interact in order
to facilitate an exchange.
INTEGRATION
▪ the action or process of

integrating.
MARKET INTEGRATION
▪ occurs when prices
among different locations
or related goods follow
similar patterns over a
long period of time.
THREE TYPES OF
MARKET
INTEGRATION
Horizontal integration
▪
is the process of a company
increasing production of goods
or services at the same part of
the supply chain. A company
may do this via internal
expansion, acquisition or merger
EFFECTS OF HORIZONTAL
INTEGRATION
▪ economies of scale
▪ economies of scope
▪ increased market power or market
share
▪ reduction of production costs
▪ reduction of competition and increases
in other synergies
Advantages of horizontal integration
▪ Lower costs.
▪ Increased differentiation.
▪ Increased market power.
▪ Reduced competition.
▪ Access to new markets.
VERTICAL INTEGRATION
▪ an arrangement in which the
supply chain of a company is
owned by that company. Usually
each member of the supply chain
produces a different product or
(market-specific) service, and the
products combine to satisfy a
common need.
Three types of vertical integration
▪ BACKWARD VERTICAL
INTEGRATION -when it controls
subsidiaries that produce some of the
inputs used in the production of its
products. For example, an automobile
company may own a tire company, a
glass company, and a metal company.
▪ FORWARD VERTICAL
INTEGRATION -when it
controls distribution centers
and retailers where its
products are sold. An example
is a brewing company that
owns and controls a number of
bars or pubs.
▪ Disintermediation- is a
form of vertical
integration when
purchasing departments
take over the former role
of wholesalers to source
products
The Advantages of a Vertical Integration
▪ Requires lower costs of transaction.

▪ Provides more competitive advantages.
▪ Allows you to invest in assets that are
highly specialized.
▪ Ensures a high level of certainty when
it comes to quality.
List of Disadvantages of Vertical Integration
▪ It can have capacity-balancing problems.

▪ It can bring about more difficulties.
▪ It can result in decreased flexibility.
▪ It can create some barriers to market entry.
▪ It can cause confusion within the business.
▪ It requires a huge amount of money.
▪ It makes things more difficult.
conglomerate integration
▪ combination of two or more

corporations operating in entirely
different industries under one
corporate group, usually involving a
parent company and many
subsidiaries. Often, a conglomerate is a
multi-industry company.
Conglomerates are often large and
multinational.
Advantages of Conglomerate integration
▪ Diversification results in a reduction of investment risk.
▪ Creates an internal capital market if the external one is not developed
enough.
▪ Can show earnings growth, by acquiring companies whose shares are more
discounted than its own.
Disadvantages of conglomerate integration
▪ The extra layers of management increase costs.
▪ Accounting disclosure is less useful information,
many numbers are disclosed grouped, rather than
separately for each business.
▪ Conglomerates can trade at a discount to the overall
individual value of their businesses because
investors can achieve diversification on their own
simply by purchasing multiple stocks.
▪ Culture clashes can destroy value.
▪ Inertia prevents development of innovation.
References
▪ https://www.investopedia.com/terms/m/market.asp
▪ https://www.merriam-webster.com/dictionary/integration
▪ https://en.wikipedia.org/wiki/Market_integration
▪ https://en.wikipedia.org/wiki/Horizontal_integration
▪ https://www.investopedia.com/.../what-are-advantages-and-disadvantages-
horizontal-
▪ https://en.wikipedia.org/wiki/Vertical_integration
▪ https://greengarageblog.org/14-main-advantages-and-disadvantages-of-
vertical-integration
▪ https://en.wikipedia.org/wiki/Conglomerate_(company)

Market Integration

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MARKET

▪ the action or process of

▪ Requires lower costs of transaction.

▪ It can have capacity-balancing problems.

▪ combination of two or more

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