vertical integration definition us history

vertical integration definition us history

The Significance of Vertical Integration in U.S. History

1. Introduction to Vertical Integration

Vertical integration offers great versatility and it is possible to work within the production or processing of products to enhance operational performance. For example, there is a joint technical development that does not need to comply with minimum contract guidance or details that are often involved with dynamic component transmission between suppliers and buyers. Vertical integration allows a company to reverse market plans in a controlled manner and hence makes management of market supply, revealed concrete plants etc. more efficient. Certain costs can be charged to reduce nickels, in addition to decreasing the delivery of products and moving the results. This reduction in payment processing provides a range of assistance to customers where all possible orders are combined and ordered as one single order.

Vertical integration is the combination of two or more production stages in one company that normally operate out of separate companies. The arguments around the limitations of such operations are debated. Vertical integration leads to the arms directing the company acquiring all the required resources for its developed raw materials and thereby reducing the risk of relying on suppliers. One of the advantages of vertical integration is the ability of a company to regulate competition through its provision.

2. Key Players and Industries in U.S. History

The concept of vertical integration refers to such diverse matters as policies toward conglomerates, business groups, purchasing cartels, hiring guilds, regulation policy, and national defense. It is the purpose of this paper to more closely identify the key players who engaged in the vertical integration game in the second half of the nineteenth century and to list the industries that utilized vertical integration as a competitive or defensive move. To do so, we process previously unrecorded data from the Dun’s Review on the ownership linkages that existed between all four-digit Standard Industrial Classification (SIC) industries that utilized vertical integration to a significant extent. Once the historical data are identified, we use contemporary data to make brief comparisons.

A. Introduction. It is beyond doubt that vertical integration has been utilized both historically and today as an important aspect of business organization. There are two dimensions to this utilization. First, business leaders have moved repeatedly in U.S. history to integrate industries: Sometimes the move was from a production stage to a supplier, and sometimes it was from a supplier to a production stage. The result was the same—the simultaneous consolidation and vertical integration of industries. The merger of Sears and Roebuck with Allstate in retailing and life insurance, the merger of U.S. Steel with iron ore and coal suppliers, the merger of Standard Oil of New Jersey (Exxon) with ocean transportation, and the merger of U.S. Leather with hemlock forests are examples. Second, in discussions of existing industrial organization, attention is directed towards the question of whether competition in the marketplace should be encouraged. The concept of vertical integration is central to this question since the incentive of firms to integrate hinges on both the level of competition at each stage in the production process and the nature of the relationships (market versus administrative) that exist between each stage in the production process.

3. Impact on Economic Growth and Competition

Once the vertical integration which maximally promotes economic growth concludes, any changes in the vertical height are likely to be disadvantageous. Further promotion of economic growth implies a higher degree of vertical integration; a choice to substitute the use of markets in place of the internal regulated direction of resources with a movement of resources managed by the invisible hand rather than the visible hand. However, it derives that it is not in general welfare to maximize the rate at which these resources are moved. Even though an increase in monopoly power increases the incentive to expand, the public is not harmed by the fact that profits rise faster. Control of the direction of economic growth gives the power necessary to alter its rate.

There are a number of reasons to believe that what benefits a sole firm may benefit a vertically integrated firm. A least-cost joint supply function suggests that a firm can produce output with the least-cost combination of resources to the extent that it is responsible for the behavior of these resources. In the firm, the profit motive can be used to channel resources into the hands of those who will use them in a least-cost way to achieve a well-defined goal. With market exchange and the profit motive, the movement of resources is directed by the wants of customers. A vertically integrated operation has the same advantages as a firm. Within it, resources can be moved to the places where they will create the most Gross National Product; that is, in the places where they will most benefit the final consumer, the affection of whom determines the relative input prices.

4. Regulation and Anti-Trust Measures

In sum, a concern about the potential influence of oligopoly and monopoly firms on markets and on the economy has a prominent and recurrent place in the treatment of the business history of the United States. The conflict of business interest, on one hand, and social and political forces calling for regulation of industries has been a consistent theme.

As the size and power of these large, integrated firms became apparent, fears arose about their potential influence over markets and their capacity to harm competitors. Starting in the 1890s with the Sherman Antitrust Act, the federal government, in conjunction with state and national courts, began a process of regulation and legal interpretation aimed at assuring competition in the U.S. economy. Over the years, these measures became more and more comprehensive, and during some periods, governmental involvement was particularly aggressive. The fear was often raised, however false in fact, that private producers would show a kind of mischievous perversity and drive marginal costs to zero in the long run, exterminating profits. One alleged public policy solution is one that even many who understand profit regard as a permanent solution – permanent public or quasipublic ownership of regulated monopolies.

5. Conclusion and Future Implications

But quantity is not quality or, necessarily, intensity of effects. Just as the GNP per capita measurement is both a comprehensive and completely unsatisfactory representative of the American standard of living over time, so too is the large scope of modern business activities for the whole the very reason for understanding the individual parts. The many commercial aspects of today’s capitalism are transformed by the forces of scale and thought to extract from the whole disarray that decreases competition. This assumes the appearance of being disquiet because the consequences hold implications for wages, resources and productivity in apparently disjoint industries. To exist in isolation and thereby to undermine the general social commitment to reducing distrust, promoting efficiency, and preserving the capability of the business to embrace future production-not to mention profits. Of course, the antitrust and older competition policies are grounded in general principles of social utility and private rights. The findings of the operations of a particular segment of the society have the purpose. Industries that evidence the risk of harm to others, either under the inefficiency rubric, are expected to draw extra consideration or to face direct administrative oversight.

The discussion of the economic history of the United States typically centers upon the original impetus for the application of antitrust laws to the then embryonic competitive order of the economy. This nineteenth century approach to the goals, enforcement, and governmental and social oversight of competition policy was applicable to a period of U.S. economic development that soon concluded. By comparison, federal research spending has provided American economic historians with a large collection of empirical materials on the antebellum U.S. economy. From one perspective, what is most interesting about economic change during the past fifty years is that, just as during the pre-1890 period, the order of magnitude of commercial operations in the American context demands a comprehensive understanding of the economy’s workings.