Answer to Question 1
Vertical integration is a strategy in which an organization takes over and owns its suppliers (backward vertical integration) or its distributors (forward vertical integration).
An organization that supplies its own inputs and/or disposes of its own outputs may be able to keep for itself the profits previously earned by its independent suppliers and distributors. Moreover, production cost savings often arise when an organization owns its suppliers because, for example, inputs can now be designed so they can be assembled at a lower cost. Also, because it now controls the reliability and quality of inputs, this can save an organization a great deal of money if products eventually have to be repaired under guarantee. An organization can call attention to its uniqueness by making its products different from those of its rivals and this can be achieved with the help of backward or forward integration. Finally, taking over a supplier by vertical integration avoids problems that result when there are only a few suppliers in an industry who may try to take advantage of an organization by, for example, raising the prices of inputs or reducing their quality.
Answer to Question 2
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