Vertical integration is attractive when
A) transaction costs are higher than internal administrative costs.
B) internal administrative costs are higher than transaction costs.
C) transaction costs and internal administrative costs are equal.
D) search costs are higher than monitoring costs.

Question

Quizplus · Accepted Answer

Vertical integration is attractive when transaction costs (the costs associated with each transaction such as finding a supplier, negotiating contracts, and ensuring contract compliance) are higher than internal administrative costs (the costs associated with managing transactions within the firm). This is because, in such cases, it becomes more cost-effective for a company to perform the activities internally rather than engaging with external entities.

Vertical Integration Is Attractive When