Specialty 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. Specialty 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.
A)Specialty 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 Specialty Steel.
D)The market power of Specialty Steel has been de-integrated.

Question

Quizplus · Accepted Answer

Specialty Steel's ownership of one of the only two brick plants that produce the required fire brick means that it is vertically integrated in the production of this input. The development of the new technology by the other brick plant reduces the cost of production but Specialty Steel is unable to take advantage of this cost-saving option as it owns the other plant that continues to use the expensive clay. This lack of flexibility is a result of its vertical integration.