Vertical integration:
A) occurs when a firm purchases its inputs in a market.
B) is attractive when relationship-specific exchange is unimportant.
C) occurs when a firm produces its own inputs.
D) is a spot exchange phenomenon.

Question

Quizplus · Accepted Answer

Vertical integration occurs when a firm produces its own inputs, meaning it controls the entire production process from the raw materials to the final product. This is opposite to outsourcing, where a firm purchases its inputs in a market. Vertical integration is especially attractive when there are benefits to coordinating production processes and when relationship-specific exchange is important. It is not a spot exchange phenomenon.

Vertical Integration