A firm engages in backward vertical integration when it incorporates more stages of the value chain within its boundaries and those stages bring it closer to gaining access to raw materials.

Question

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Backward vertical integration means that the firm is integrating stages that come before its current position in the value chain, such as suppliers of raw materials. Therefore, by incorporating those stages, the firm gains greater control over the access to the raw materials that feed the rest of the value chain, reducing dependence on third parties and potentially achieving cost savings and efficiency gains.

A Firm Engages in Backward Vertical Integration When It Incorporates