Question

Apple's supply chain (the chain of companies from which apple purchases parts and manufacturing labor) includes over 200 different companies, including some of their own competitors such as lg and samsung.

suppose that apple is considering vertical integration in order to limit or eliminate the bargaining power of its suppliers.

identify each item that represent a danger of vertical integration.
a. vertical integration may make your company more likely to experience a hold-up problem.
b. vertical integration may blunt the incentive to keep your costs low.
c. fewer relationship-specific investments are made when companies vertically integrate.
d. your suppliers may have a comparative advantage in producing specific products that will be difficult to achieve with vertical integration.
e. vertical integration is likely to increase transaction costs.

Answer 1

The dangers of vertical integration in Apple's supply chain include the likelihood of hold-up problems, a blunted incentive to keep costs low, fewer relationship-specific investments, difficulty replicating suppliers' comparative advantages, and increased transaction costs. All of the given options are correct.

Step-by-step explanation:

The dangers of vertical integration in Apple's supply chain include:

1. Vertical integration may make your company more likely to experience a hold-up problem: When a company vertically integrates and relies heavily on its own production, it becomes vulnerable to potential hold-ups from its suppliers or partners. This can lead to inefficiencies and delays in production.
2. Vertical integration may blunt the incentive to keep your costs low: When a company has complete control over its supply chain, there may be less pressure to negotiate lower prices or keep costs low. This can lead to higher overall costs for the company.
3. Fewer relationship-specific investments are made when companies vertically integrate: When a company relies on external suppliers, it often builds long-term relationships and makes investments specific to those relationships. Vertical integration can disrupt or eliminate these relationships, leading to a loss of specialized knowledge and resources.
4. Your suppliers may have a comparative advantage in producing specific products that will be difficult to achieve with vertical integration: Some suppliers may have expertise or resources in specific areas that are vital to the production process. Vertical integration may not be able to replicate the same level of specialization and efficiency.
5. Vertical integration is likely to increase transaction costs: When a company vertically integrates, it takes on additional costs and responsibilities associated with managing all aspects of the supply chain internally. This can result in higher transaction costs and overall inefficiencies.