For a discussion of the multiple advantages (both revenue-increasing and/or cost-decreasing) of vertical integration, see WeddingNugent, ed., Vertical Integration in Marketing (Urbana: University of Illinois, 1952).
2.
Risk, in this sense, may be defined as a threat to the firm's freedom of action. Therefore, negative control of the nth degree implies the complete elimination of any freedom of action in that the firm would be under the absolute dominance of the contracting party. Positive control of the nth degree would imply that, as far as the relationship between the contracting parties is concerned, that firm enjoying the controlling position has complete freedom of action.
3.
Lesser risks, resulting from government regulation, say, would restrict the behavior of the firm in certain ways, as would risks emanating from other sources, e.g., competition.
4.
Small firms tend to possess a low capacity for exercising effective leverage in the market and may face undue difficulty in attempting to control two or more process bases. This would be especially true in the event that either the manufacturing input source or the final-sale outlet bases were located at a great distance from the manufacturing plant. On the other hand, large firms would be more likely to possess sufficient resources to control manufacturing input sources, warehouse and transportation facilities, and final-sale outlet systems.
5.
Adapted from BalderstonFred E., “Theories of Marketing Structure and Channels,” in DuncanDelbert J., ed., Proceedings: Conference of Marketing Teachers from Far Western States (Berkeley: University of California, Sept. 8–10, 1958), pp. 134–145.
6.
Adapted from HoltonRichard H., “The Role of Competition and Monopoly in Distribution: The Experience in the United States,” in MillerJohn Perry, ed., Competition, Cartels and their Regulation (Amsterdam: North Holland Publishers, 1962), pp. 263–305.
7.
Phase S0 represents initial activity on the part of the firm, e.g., defining objectives, raising capital funds, securing key personnel, constructing a manufacturing plant. As such this period gives no evidence of any vertical integration activity. The notation for phase S0 is: IIIc(J).
8.
To explain, the “III” represents process base III (manufacturing); subscript “c” connotes ownership over activities performed at that base; the “J” defines the control strategy, which in this case implies internal-plant expansion. No vertical integration activity is suggested during phase S0 in that the notation accounts for only one process base.
9.
The notation specifies that, in terms of primary vertical integration, a firm: (a) exerts some control over process base II (manufacturing input distribution) through contractual arrangements; (b) controls process base III (manufacturing) via ownership in fee simple resulting from internal plant expansion; and (c) holds nominal control, if any, over process base IV (finished-product distribution) through contractual arrangements.
