A disadvantage of vertical integration is that by pooling demand for parts from a number of companies, a supplier may be able to enjoy economies of scale that result in higher quality and lower cost than if every company makes its own parts.

Question

Quizplus · Accepted Answer

This statement is true. By pooling demand for parts, a supplier can benefit from economies of scale, resulting in higher quality and lower costs than if every company were to make its own parts. Vertical integration eliminates this advantage and may result in higher costs for the integrated company.

A Disadvantage of Vertical Integration Is That by Pooling Demand