Vertical integration

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Part of the series on
Corporate Players

Board of Directors

Business Forms

Sole Proprietorship
Closely-Held Corp.

Economic Concepts

Agency Cost
Mergers & Acquisitions
Transaction Cost
Horizontal Integration
Vertical Integration

Vertical integration is the process by which a corporation acquires related businesses in a supply chain. For example, a steel mill may acquire a smelter, a mining corporation, and a transport network. This process is also referred to as "internalization"; the famous economist Ronald Coase theorized that, ideally, a firm would internalize all possible functions, until the transaction cost of internalizing outstripped the transaction cost of doing business with an unaffiliated firm.