Vertical integration

Vertical integration is often closely associated with vertical expansion which, in economics, is the growth of a business enterprise through the acquisition of companies that produce the intermediate goods needed by the business or help market and distribute its product. Such expansion is desired because it secures the supplies needed by the firm to produce its product and the market needed to sell the product. Such expansion can become undesirable when its actions become anti-competitive and impede free competition in an open marketplace.

The result is a more efficient business with lower costs and more profits. On the undesirable side, when vertical expansion leads toward monopolistic control of a product or service then regulative action may be required to rectify anti-competitive behavior. Related to vertical expansion is lateral expansion, which is the growth of a business enterprise through the acquisition of similar firms, in the hope of achieving economies of scale.

Vertical expansion is also known as a vertical acquisition. Vertical expansion or acquisitions can also be used to increase sales and to gain market power. The acquisition of DirecTV by News Corporation is an example of forwarding vertical expansion or acquisition. DirecTV is a satellite TV company through which News Corporation can distribute more of its media content: news, movies, and television shows. The acquisition of NBC by Comcast is an example of backward vertical integration. For example, in the United States, protecting the public from communications monopolies that can be built in this way is one of the missions of the Federal Communications Commission.

Scholar's findings suggest that a reduction in inefficiencies caused by the market vertical value chains including downstream prices, double mark-up can be negated with vertical integration. Application in more complex environments can help firms overcome market failures. (markets with high transaction costs or assets specificities) Scholars also identified potential risks and boundaries which may occur under vertical integration. This includes the potential competitor, the enhancements to horizontal collusion, development of barriers to entry. However, it is still debated over if vertical integration expected efficiencies can lead to competitive harm to the market. Some conclude that in many cases that the efficiencies outweigh the potential risks.^[3]

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Economics

Economics

Economics is the social science that studies the production, distribution, and consumption of goods and services.

Mergers and acquisitions

Mergers and acquisitions

Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect of strategic management, M&A can allow enterprises to grow or downsize, and change the nature of their business or competitive position.

Business

Business

Business is the practice of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."

Monopoly

Monopoly

A monopoly, as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a specific person or enterprise is the only supplier of a particular thing. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market. Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with a decrease in social surplus. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.

Lateral expansion

Lateral expansion

Lateral expansion, in economics, is the growth of a business enterprise through the acquisition of similar companies, in the hope of achieving economies of scale or economies of scope. Unchecked lateral expansion can lead to powerful conglomerates or monopolies.

Economies of scale

Economies of scale

In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables an increase in scale. At the basis of economies of scale, there may be technical, statistical, organizational or related factors to the degree of market control. This is just a partial description of the concept.

DirecTV

DirecTV

DirecTV is an American multichannel video programming distributor based in El Segundo, California. Originally launched on June 17, 1994, its primary service is a digital satellite service serving the United States. It also provides traditional linear television service delivered by IP through its U-verse TV brand and a Virtual MVPD service through its DirecTV Stream brand. Its primary competitors are Dish Network, traditional cable television providers, IP-based television services, and other over-the-top video services.

NBC

NBC

The National Broadcasting Company (NBC) is an American English-language commercial broadcast television and radio network. The flagship property of the NBC Entertainment division of NBCUniversal, a division of Comcast, its headquarters are located at Comcast Building in New York City. The company also has offices in Los Angeles at 10 Universal City Plaza and Chicago at the NBC Tower. NBC is the oldest of the traditional "Big Three" American television networks, having been formed in 1926 by the Radio Corporation of America. NBC is sometimes referred to as the "Peacock Network," in reference to its stylized peacock logo, introduced in 1956 to promote the company's innovations in early color broadcasting.

Comcast

Comcast

Comcast Corporation, headquartered in Philadelphia, is the largest American multinational telecommunications conglomerate. It is the second-largest broadcasting and cable television company in the world by revenue, the largest pay-TV company, the largest cable TV company and largest home Internet service provider in the United States, and the nation's third-largest home telephone service provider. It provides services to U.S. residential and commercial customers in 40 states and the District of Columbia. As the parent company of the international media company NBCUniversal since 2011, Comcast is a producer of feature films for theatrical exhibition, and over-the-air and cable television programming.

Federal Communications Commission

Federal Communications Commission

The Federal Communications Commission (FCC) is an independent agency of the United States federal government that regulates communications by radio, television, wire, satellite, and cable across the United States. The FCC maintains jurisdiction over the areas of broadband access, fair competition, radio frequency use, media responsibility, public safety, and homeland security.

Contrary to horizontal integration, which is a consolidation of many firms that handle the same part of the production process, vertical integration is typified by one firm engaged in different parts of production (e.g., growing raw materials, manufacturing, transporting, marketing, and/or retailing). Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. The differences depend on where the firm is placed in the order of the supply chain.

There are three varieties of vertical integration: backward (upstream) vertical integration, forward (downstream) vertical integration, and balanced (both upstream and downstream) vertical integration.

• A company exhibits backward vertical integration when it controls subsidiaries that produce some of the inputs used in the production of its products. For example, an automobile company may own a tire company, a glass company, and a metal company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure consistent quality in their final product. It was the main business approach of Ford and other car companies in the 1920s, who sought to minimize costs by integrating the production of cars and car parts, as exemplified in the Ford River Rouge Complex.
• A company tends toward forward vertical integration when it controls distribution centers and retailers where its products are sold. An example is a brewing company that owns and controls a number of bars or pubs.

Disintermediation is a form of vertical integration when purchasing departments take over the former role of wholesalers to source products.^[4]

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Horizontal integration

Horizontal integration

Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger.

Tire

Tire

A tire or tyre is a ring-shaped component that surrounds a wheel's rim to transfer a vehicle's load from the axle through the wheel to the ground and to provide traction on the surface over which the wheel travels. Most tires, such as those for automobiles and bicycles, are pneumatically inflated structures, which also provide a flexible cushion that absorbs shock as the tire rolls over rough features on the surface. Tires provide a footprint, called a contact patch, that is designed to match the weight of the vehicle with the bearing strength of the surface that it rolls over by providing a bearing pressure that will not deform the surface excessively.

Glass

Glass

Glass is a non-crystalline, often transparent, amorphous solid that has widespread practical, technological, and decorative use in, for example, window panes, tableware, and optics. Glass is most often formed by rapid cooling (quenching) of the molten form; some glasses such as volcanic glass are naturally occurring. The most familiar, and historically the oldest, types of manufactured glass are "silicate glasses" based on the chemical compound silica, the primary constituent of sand. Soda–lime glass, containing around 70% silica, accounts for around 90% of manufactured glass. The term glass, in popular usage, is often used to refer only to this type of material, although silica-free glasses often have desirable properties for applications in modern communications technology. Some objects, such as drinking glasses and eyeglasses, are so commonly made of silicate-based glass that they are simply called by the name of the material.

Ford Motor Company

Ford Motor Company

Ford Motor Company is an American multinational automobile manufacturer headquartered in Dearborn, Michigan, United States. It was founded by Henry Ford and incorporated on June 16, 1903. The company sells automobiles and commercial vehicles under the Ford brand, and luxury cars under its Lincoln luxury brand. Ford also owns Brazilian SUV manufacturer Troller, an 8% stake in Aston Martin of the United Kingdom and a 32% stake in China's Jiangling Motors. It also has joint ventures in China, Taiwan, Thailand, and Turkey. The company is listed on the New York Stock Exchange and is controlled by the Ford family; they have minority ownership but the majority of the voting power.

Disintermediation

Disintermediation

Disintermediation is the removal of intermediaries in economics from a supply chain, or "cutting out the middlemen" in connection with a transaction or a series of transactions. Instead of going through traditional distribution channels, which had some type of intermediary, companies may now deal with customers directly, for example via the Internet.

Problems that can stem from vertical integration can include large capital investments needed to set up and buy factories and maintain efficient profits. Rapid technology development can increase integration difficulties and further increase costs. The requirement of different business skills venturing into new portions of the supply chain can be challenging for the firm.^[5] Implementation of vertical integration can yield increased profit margins or eliminate the leverage that other firms or buyers may have over the firm.^[6]

There are internal and external society-wide gains and losses stemming from vertical integration, which vary according to the state of technology in the industries involved, roughly corresponding to the stages of the industry lifecycle. Static technology represents the simplest case, where the gains and losses have been studied extensively. A vertically integrated company usually fails when transactions within the market are too risky or the contracts to support these risks are too costly to administer, such as frequent transactions and a small number of buyers and sellers.

Internal gains

• Lower transaction costs
• Synchronization of supply and demand along the chain of products
• Lower uncertainty and higher investment
• Capture of profit margins from upstream or downstream
• Ability to monopolize market throughout the chain by market foreclosure
• Strategic independence (especially if important inputs are rare or highly volatile in price, such as rare-earth metals).

Internal losses

• Higher monetary and organizational costs of switching to other suppliers/buyers
• Weaker motivation for good performance at the start of the supply chain since sales are guaranteed and poor quality may be blended into other inputs at later manufacturing stages
• Specific investment, capacity balancing issue
• Developing new business competencies can compromise on existing competencies

Benefits to society

• Better opportunities for investment growth through reduced uncertainty
• Local companies are often better positioned against foreign competition
• Lower consumer prices by reducing markup from intermediaries^[7]

Losses to society

• Monopolization of markets
• Rigid organizational structure
• Manipulation of prices (if market power is established)
• Loss of tax revenue as fewer intermediary transactions are made

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Supply and demand

Supply and demand

In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded will equal the quantity supplied, resulting in an economic equilibrium for price and quantity transacted. The concept of supply and demand forms the theoretical basis of modern economics.

Monopoly

Monopoly

A monopoly, as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a specific person or enterprise is the only supplier of a particular thing. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market. Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with a decrease in social surplus. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.

Market foreclosure

Market foreclosure

Market foreclosure or vertical foreclosure, is the production limitation put on a producing organisation if either it is denied access to a supplier, or it is denied access to a downstream buyer. A supplier or intermediary in a supply chain could acquire this form of market power against competitors through means of mergers and acquisitions. This amalgamation of suppliers and customers demonstrates vertical integration along a value chain with various strategic and efficiency benefits including elimination of successive monopoly markups and lowering transaction costs.

Monopolization

Monopolization

In United States antitrust law, monopolization is illegal monopoly behavior. The main categories of prohibited behavior include exclusive dealing, price discrimination, refusing to supply an essential facility, product tying and predatory pricing. Monopolization is a federal crime under Section 2 of the Sherman Antitrust Act of 1890. It has a specific legal meaning, which is parallel to the "abuse" of a dominant position in EU competition law, under TFEU article 102. Section 2 of the Sherman Act states that any person "who shall monopolize. .. any part of the trade or commerce among the several states, or with foreign nations shall be deemed guilty of a felony." Section 2 also forbids "attempts to monopolize" and "conspiracies to monopolize". Generally this means that corporations may not act in ways that have been identified as contrary to precedent cases.

Organizational structure

Organizational structure

An organizational structure defines how activities such as task allocation, coordination, and supervision are directed toward the achievement of organizational aims. An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization.These activities can include rules,roles,and responsibilities. In addition: a system that outlines how certain activities are directed in order to achieve the goals of an organization.

Birdseye

During a hunting trip American explorer and scientist Clarence Birdseye discovered the beneficial effects of "quick-freezing". For example, fish caught a few days previously that were kept in ice remained in perfect condition.

In 1924, Clarence Birdseye patented the "Birdseye Plate Froster" and established the General Seafood Corporation. In 1929, Birdseye's company and the patent were bought by Postum Cereals and Goldman Sachs Trading Corporation. It was later known as General Foods. They kept the Birdseye name, which was split into two words (Birds eye) for use as a trademark. Birdseye was paid $20 million for the patents and $2 million for the assets.

Birds Eye was one of the pioneers in the frozen food industry. During these times, there was not a well-developed infrastructure to produce and sell frozen foods. Hence Birds Eye developed its own system by using vertical integration. Members of the supply chain, such as farmers and small food retailers, could not afford the high cost of equipment, so Birdseye provided it to them.

Until now, Birds Eye has faded slowly because they have fixed costs associated with vertical integration, such as property, plants, and equipment that cannot be reduced significantly when production needs decrease. The Birds Eye company used vertical integration to create a larger organization structure with more levels of command. This produced a slower information processing rate, with the side effect of making the company so slow that it could not react quickly. Birds Eye did not take advantage of the growth of supermarkets until ten years after the competition did. The already-developed infrastructure did not allow Birdseye to quickly react to market changes.

Alibaba

In order to increase profits and gain more market share, Alibaba, a China-based company, has implemented vertical integration deepening its company holdings to more than the e-commerce platform. Alibaba has built its leadership in the market by gradually acquiring complementary companies in a variety of industries including delivery and payments.

Steel and oil

One of the earliest, largest and most famous examples of vertical integration was the Carnegie Steel company. The company controlled not only the mills where the steel was made, but also the mines where the iron ore was extracted, the coal mines that supplied the coal, the ships that transported the iron ore and the railroads that transported the coal to the factory, the coke ovens where the coal was coked, etc. The company focused heavily on developing talent internally from the bottom up, rather than importing it from other companies.^[8] Later, Carnegie established an institute of higher learning to teach the steel processes to the next generation.

Oil companies, both multinational (such as ExxonMobil, Royal Dutch Shell, ConocoPhillips or BP) and national (e.g., Petronas) often adopt a vertically integrated structure, meaning that they are active along the entire supply chain from locating deposits, drilling and extracting crude oil, transporting it around the world, refining it into petroleum products such as petrol/gasoline, to distributing the fuel to company-owned retail stations, for sale to consumers. Standard Oil is a famous example of both horizontal and vertical integration, combining extraction, transport, refinement, wholesale distribution, and retail sales at company-owned gas stations.

Telecommunications and computing

Telephone companies in most of the 20th century, especially the largest (the Bell System) were integrated, making their own telephones, telephone cables, telephone exchange equipment and other supplies.^[9]

Apple

Apple has used the vertical integration strategy for 35 years and is one of the most successful companies in the technology industry. Apple centered its business strategy on its own development of integrated hardware, software, and latterly services. They design most of their products in-house, and does not allow their hardware and operating system to be licensed out, with this strategic allowing the company to apply its company vision to its products. Large companies such as Apple are more likely than smaller companies to employ vertical integration, as they have more resources to manage each stage of production (e.g. major expansion and funding). Implementing a vertically integrated strategy has helped Apple become a leading platform company; integrating their software (through APIs for third-party application developers) with their own hardware, across all the devices and services they offer. Vertical integration allows Apple to control production from beginning to end. Other companies may follow the Apple model, but may not see success for some time, both due to the cost of entering the market and taking on the currently successful incumbent, but also by innovating their products to make them more appealing in the marketplace than the current incumbent. Vertical integration requires a company to focus not only on its core business, but also on several difficult areas such as sourcing materials and manufacturing partners, distribution, and finally selling the product.

Another major success of Apple's, is the forward integration with their retail stores, allowing them to sell their products directly to customers (helping customers to buy and use Apple's products and services), additionally helping them to control the prices of their products, and thus to maintain high-profit margins when they do.^[10] Apple is also known as one of the world's leading "orchestrators" as they exert control over the entire value chain, but do not do everything in-house (e.g. assembly of iPhones by manufacturing partner Foxconn).^[11]

Entertainment

From the early 1920s through the early 1950s, the American motion picture had evolved into an industry controlled by a few companies, a condition known as a "mature oligopoly", as it was led by eight major film studios, the most powerful of which were the "Big Five" studios: MGM, Warner Brothers, 20th Century Fox, Paramount Pictures, and RKO.^[12] These studios were fully integrated, not only producing and distributing films, but also operating their own movie theaters; the "Little Three", Universal Studios, Columbia Pictures, and United Artists, produced and distributed feature films but did not own theaters.

The issue of vertical integration (also known as common ownership) has been the main focus of policy makers because of the possibility of anti-competitive behaviors affiliated with market influence. For example, in United States v. Paramount Pictures, Inc., the Supreme Court ordered the five vertically integrated studios to sell off their theater chains and all trade practices were prohibited (United States v. Paramount Pictures, Inc., 1948).^[13] The prevalence of vertical integration wholly predetermined the relationships between both studios and networks and modified criteria in financing. Networks began arranging content initiated by commonly owned studios and stipulated a portion of the syndication revenues in order for a show to gain a spot on the schedule if it was produced by a studio without common ownership.^[14] In response, the studios fundamentally changed the way they made movies and did business. Lacking the financial resources and contract talent they once controlled, the studios now relied on independent producers supplying some portion of the budget in exchange for distribution rights.^[15]

Certain media conglomerates may, in a similar manner, own television broadcasters (either over-the-air or on cable), production companies that produce content for their networks, and also own the services that distribute their content to viewers (such as television and internet service providers). AT&T, Bell Canada, Comcast, Sky plc, and Rogers Communications are vertically integrated in such a manner—operating media subsidiaries (such as WarnerMedia, Bell Media, NBCUniversal, and Rogers Media), and provide "triple play" services of television, internet, and phone service in some markets (such as Bell Satellite TV/Bell Internet, Rogers Cable, Xfinity, and Sky's satellite TV and internet services). Additionally, Bell and Rogers own wireless providers, Bell Mobility and Rogers Wireless, while Comcast is partnered with Verizon Wireless for an Xfinity-branded MVNO. Similarly, Sony has media holdings through its Sony Pictures division, including film and television content, as well as television channels, but is also a manufacturer of consumer electronics that can be used to play content from itself and others, including televisions, phones, and PlayStation video game consoles. AT&T is the first ever vertical integration where a mobile phone company and a film studio company are under same umbrella.

Agriculture

Vertical integration through production and marketing contracts have also become the dominant model for livestock production. Currently, 90% of poultry, 69% of hogs, and 29% of cattle are contractually produced through vertical integration.^[16] The USDA supports vertical integration because it has increased food productivity. However, "... contractors receive a large share of farm receipts, formerly assumed to go to the operator's family".^[17]

Under production contracts, growers raise animals owned by integrators. Farm contracts contain detailed conditions for growers, who are paid based on how efficiently they use feed, provided by the integrator, to raise the animals. The contract dictates how to construct the facilities, how to feed, house, and medicate the animals, and how to handle manure and dispose of carcasses. Generally, the contract also shields the integrator from liability.^[16] Jim Hightower, in his book, Eat Your Heart Out,^[18] discusses this liability role enacted by large food companies. He finds that in many cases of agricultural vertical integration, the integrator (food company) denies the farmer the right of entrepreneurship. This means that the farmer can only sell under and to the integrator. These restrictions on specified growth, Hightower argues, strips the selling and producing power of the farmer. The producer is ultimately limited by the established standards of the integrator. Yet, at the same time, the integrator still keeps the responsibility connected to the farmer. Hightower sees this as ownership without reliability.^[19]

Under marketing contracts, growers agree in advance to sell their animals to integrators under an agreed price system. Generally, these contracts shield the integrator from liability for the grower's actions and the only negotiable item is a price.^[16]

Automotive industry

In the United States new automobiles can not be sold at dealerships owned by the same company that produced them but are protected by state franchise laws.^[20]

Eyewear

EssilorLuxottica, the company that merged with Essilor and Luxottica, occupies up to 30% of the global market share as well as representing billions of pairs of lenses and frames sold annually. Before the merger, Luxottica also owned 80% of the market share of companies that produce corrective and protective eyewear as well as owning many retailers, optical departments at Target and Sears, and key eye insurance groups, such as EyeMed, many of which are already part of the now merged company.^{[21][22][23][24]}

Health care

In the United States, major vertical mergers have included CVS Health's purchase of Aetna, and Cigna's purchase of Express Scripts.

General retail

Amazon.com has been criticized for being anti-competitive as both an owner and participant of its dominant online marketplace. In office products, Sycamore Partners owns both Staples, Inc., a major retailer, and Essendant, a dominant wholesaler.

Electric utilities

Before a wave of deregulation at the end of 20th century, most electric utilities were vertically integrated and provided electric generation, transmission, distribution, and sales. These were not just conglomerates with a common accounting department: there was just one profit center in sales, and costs of transmission and distribution were not separated. Partial deregulation in the US in 1978 (PURPA) forced the utilities to buy electricity outside if the rates were competitive; this gave rise to independent power producers. The other deviation from the vertical integration model were local distribution companies in some towns and regions. In the US 250 vertically integrated companies provided 85% of electrical generation.^[25] As of 2022, this "public utility" model was still utilized in some US states, mostly in the Mountain West, Great Plains, and Southeast.^[26]

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Clarence Birdseye

Clarence Birdseye

Clarence Birdseye was an American inventor, entrepreneur, and naturalist, considered the founder of the modern frozen food industry. He founded the frozen food company Birds Eye. Among his inventions during his career was the double belt freezer.

Flash freezing

Flash freezing

In physics and chemistry, flash freezing is the process whereby objects are frozen in just a few hours by subjecting them to cryogenic temperatures, or through direct contact with liquid nitrogen at −196 °C (−320.8 °F). It is commonly used in the food industry.

Goldman Sachs

Goldman Sachs

Goldman Sachs is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, Hong Kong, Tokyo, Dallas and Salt Lake City, and additional offices in other international financial centers. Goldman Sachs is the second largest investment bank in the world by revenue and is ranked 57th on the Fortune 500 list of the largest United States corporations by total revenue. It is considered a systemically important financial institution by the Financial Stability Board.

General Foods

General Foods

General Foods Corporation was a company whose direct predecessor was established in the United States by Charles William Post as the Postum Cereal Company in 1895.

Frozen food

Frozen food

Freezing food preserves it from the time it is prepared to the time it is eaten. Since early times, farmers, fishermen, and trappers have preserved grains and produce in unheated buildings during the winter season. Freezing food slows decomposition by turning residual moisture into ice, inhibiting the growth of most bacterial species. In the food commodity industry, there are two processes: mechanical and cryogenic. The freezing kinetics is important to preserve the food quality and texture. Quicker freezing generates smaller ice crystals and maintains cellular structure. Cryogenic freezing is the quickest freezing technology available due to the ultra low liquid nitrogen temperature −196 °C (−320 °F).

Alibaba Group

Alibaba Group

Alibaba Group Holding Limited, also known as Alibaba, is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology. Founded on 28 June 1999 in Hangzhou, Zhejiang, the company provides consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business (B2B) sales services via web portals, as well as electronic payment services, shopping search engines, and cloud computing services. It owns and operates a diverse portfolio of companies around the world in numerous business sectors.

Coal

Coal

Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen. Coal is a type of fossil fuel, formed when dead plant matter decays into peat and is converted into coal by the heat and pressure of deep burial over millions of years. Vast deposits of coal originate in former wetlands called coal forests that covered much of the Earth's tropical land areas during the late Carboniferous (Pennsylvanian) and Permian times. Many significant coal deposits are younger than this and originate from the Mesozoic and Cenozoic eras.

Coke (fuel)

Coke (fuel)

Coke is a grey, hard, and porous coal-based fuel with a high carbon content and few impurities, made by heating coal or oil in the absence of air—a destructive distillation process. It is an important industrial product, used mainly in iron ore smelting, but also as a fuel in stoves and forges when air pollution is a concern.

ExxonMobil

ExxonMobil

ExxonMobil Corporation is an American multinational oil and gas corporation headquartered in Spring, Texas, United States. It is the largest direct descendant of John D. Rockefeller's Standard Oil, and was formed on November 30, 1999, by the merger of Exxon and Mobil, both of which are used as retail brands, alongside Esso, for fueling stations and downstream products today. The company is vertically integrated across the entire oil and gas industry, and within it is also a chemicals division which produces plastic, synthetic rubber, and other chemical products. ExxonMobil is incorporated in New Jersey.

ConocoPhillips

ConocoPhillips

ConocoPhillips Company is an American multinational corporation engaged in hydrocarbon exploration and production. It is based in the Energy Corridor district of Houston, Texas.

BP

BP

BP p.l.c. is a British multinational oil and gas company headquartered in London, England. It is one of the oil and gas "supermajors" and one of the world's largest companies measured by revenues and profits. It is a vertically integrated company operating in all areas of the oil and gas industry, including exploration and extraction, refining, distribution and marketing, power generation, and trading.

Hydrocarbon exploration

Hydrocarbon exploration

Hydrocarbon exploration is the search by petroleum geologists and geophysicists for deposits of hydrocarbons, particularly petroleum and natural gas, in the Earth's crust using petroleum geology.

In economic theory, vertical integration has been studied in the literature on incomplete contracts that was developed by Oliver Hart and his coauthors.^[27][28] Consider a seller of an intermediate product that is used by a buyer to produce a final product. The intermediate product can only be produced with the help of specific physical assets (e.g., machines, buildings). Should the buyer own the assets (vertical integration) or should the seller own the assets (non-integration)? Suppose that today the parties have to make relationship-specific investments. Since today complete contracts cannot be written, the two parties will negotiate tomorrow about how to divide the returns of the investments. Since the owner is in a better bargaining position, he will have stronger incentives to invest. Hence, whether vertical integration is desirable or not depends on whose investments are more important. Hart's theory has been extended by several authors. For instance, DeMeza and Lockwood (1998) have studied different bargaining games,^[29] while Schmitz (2006) has introduced asymmetric information into the incomplete contracting setup.^[30] In these extended models, vertical integration can sometimes be optimal even if only the seller has to make an investment decision.