Causes and effects of vertical intergration

This paper sets out to define new measures of industry-average forward and backward integration, and incorporate them into an empirical stucture–conduct–performance model. Results suggest that integration is encouraged where there are relatively few firms in an industry and if sales are increasing. Forward integration occurs in reaction to large outgoing distribution margins. Backward integration acts to increase concentration, at least in some parts of the manufacturing sector. Integratin has a complex and interactive effect on profitability, serving sometimes to raise profitability and sometimes to lower it.

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