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Vertical integration describes the ownership or control by a firm of different stages of the production process, e.g., petroleum refining firms owning "downstream" the terminal storage and retail gasoline distribution facilities and "upstream" the crude oil field wells and transportation pipelines.

"Forward" integration refers to the production to distribution stages whereas "backward" integration refers to the production to raw material stages of the operations of a firm.

Vertical integration may be achieved through new investment and/or vertical mergers and acquisition of existing firms at different stages of production. An important motive for vertical integration is efficiencies and minimization of transaction costs.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.


Statistical Theme: Financial statistics

Created on Thursday, January 3, 2002

Last updated on Monday, March 17, 2003