Once a firm buys its supplier in order to vertically integrate a process,

Question

Quizplus · Accepted Answer

When a firm buys its supplier and vertically integrates a process, it eliminates competition in the market, which removes the high-powered incentives of market forces to keep costs low. Without competition, the integrated firm may not feel the same pressure to keep costs low, as it now controls the entire supply chain. Hence, option A is the best choice. Option B is incorrect because knowing the supplier's previous profit does not guarantee that costs will be lower. Option C may be true in some cases, but it is not guaranteed; and Option D is also incorrect because closing the purchasing department may not necessarily save costs, especially if the firm still needs to purchase raw materials from other suppliers.

Once a Firm Buys Its Supplier in Order to Vertically