Economies of Vertical integration

Economies of Vertical integration: A large firm may decide to have vertical integration by combining a number of stages of production. This integration has the advantage that the flow of goods through various stages in production processes is more readily controlled. Steady supplies of raw materials, on the one hand, and steady outlets for these raw materials, on the other, make production planning more certain and less subject to erratic and unpredictable changes. Vertical integration may also facilitate cost control, as most of the costs become controllable costs for the enterprise. Transport’ costs may also be reduced by planning transportation in such a way that cross hauling is reduced to the minimum.

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