Vertical integration is the process whereby different aspects of a business, "upstream" and "downstream" -- ranging from sourcing raw materials and production to marketing -- are brought together. In the oil business a company whichis primarily engaged in the production of crude petroleum may decide to engage in vertical integration by acquiring downstream refineries and distribution networks. Similarly, a company strong in its downstream operations may try to engage in vertical integration by investing more in exploration and development and acquiring a greater stake in the production process. Vertical integration may also occur when complementary companies make long term contracts with one another or joint ventures, or if they decide to merge.
Vertical integration should not be confused with horizontal integration, or movements toward greater oligopoly or monopoly within an industry. However, vertical integration may encourage tendencies toward oligopoly by offering the integrated companies a competitive edge against their less integrated rivals.
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to Politics of International Oil
13 Dec 1996
Department of
Government, College of Liberal
Arts, University of Texas at Austin.
Questions, Comments, and Suggestions to chenry@gov.utexas.edu
Copyright © 1997 University of Texas at Austin