Progressive Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces.The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick.Progressive Steel owns one of these brick plants and buys all of its production.The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick.This significantly reduces the production cost of this type of brick.Which of the following statements is true?
A) Progressive Steel has less flexibility now than if it were not vertically integrated.
B) This is an example of a capacity balance problem.
C) This is a result of conflicts of interest between the managers of the brick plant and the executives of Progressive Steel.
D) The market power of Progressive Steel has been reducing vertical integration.

Question

Quizplus · Accepted Answer

Vertical integration can reduce flexibility because the company is tied to its own production capabilities and may not be able to easily adapt to changes in technology or market conditions, such as the development of a new technology by a competitor.