In
microeconomics and
management, the term
vertical integration describes a style of
management control. Vertically integrated companies in a
supply chain are united through a common owner. Usually each member of the supply chain produces a different
product or (market-specific) service, and the products combine to satisfy a common need. It is contrasted with
horizontal integration. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership, but also into one corporation (as in the 1920s when the
Ford River Rouge Complex began making much of its own steel rather than buying it from suppliers).
Vertical integration is one method of avoiding the
hold-up problem. A monopoly produced through vertical integration is called a
vertical monopoly.
Nineteenth-century
steel tycoon
Andrew Carnegie's example in the use of vertical integration led others to use the system to promote financial growth and efficiency in their businesses.