Vertical integration can raise costs if, over time, a company continues to purchase inputs from company-owned suppliers when low-cost independent suppliers that can supply the same inputs exist.

Question

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Vertical integration may lead to higher costs if the company insists on purchasing inputs from its own suppliers instead of seeking out lower-cost alternatives that may exist outside of its vertically integrated value chain. This is because company-owned suppliers may not have the same incentives to offer competitive prices, and the lack of competition may result in higher input costs.

Vertical Integration Can Raise Costs If, Over Time, a Company