6.12

In each of the following situations, would you recommend vertical integration or no vertical integration? Explain.

(a) Firm A needs a new and unique technology for its product line. No substitute technologies are available. Should Firm A make this technology or buy it?

(b) Firm I has been selling its products through a distributor for some time. It has become the market share leader. Unfortunately, this distributor has not been able to keep up with the evolving technology and customers are complaining. No alternative distributors are available. Should Firm I keep its current distributor, or should it begin distribution on its own?

(c) Firm Alpha has manufactured its own products for years. Recently, however, one of these products has become more and more like a commodity. Several firms are now able to manufacture this product at the same price and quality as Firm Alpha. However, they do not have Firm Alphas brand name in the marketplace. Should Firm Alpha continue to manufacture this product, or should it outsource it to one of these other firms?

(d) Firm I is convinced that a certain class of technologies holds real economic potential. However, it does not know, for sure, which particular version of this technology is going to dominate the market. There are eight competing versions of this technology currently, but ultimately only one will dominate the market. Should Firm I invest in all eight of these technologies itself? Should it invest in just one of these technologies? Should it partner with other firms that are investing in these different technologies?