Why is market demand uncertainty a factor to consider when deciding whether to opt for vertical integration?
A)The greater the unpredictability of demand, the greater the need to make suppliers suffer the consequences rather than the firm
B)The greater the unpredictability of demand, the greater the consequences of compounded risk through vertical integration
C)The more turbulent the demand, the greater the control advantage of vertical integration
D)The more uncertain the market demand, the greater the bargaining power of the firm in the external market

Question

Quizplus · Accepted Answer

When market demand is uncertain, there is a higher risk of compounded risk through vertical integration. This is because vertical integration involves taking on additional risks such as production, distribution, and marketing. If demand turns out to be lower than expected, the firm may be left with excess inventory and fixed costs. On the other hand, if demand is higher than expected, the firm may not be able to fulfill orders due to capacity constraints. Therefore, the greater the unpredictability of demand, the greater the consequences of compounded risk.

Why Is Market Demand Uncertainty a Factor to Consider When