Final answer:
Vertical coordination consists of administrative, contractual types, and vertical integration. The difference is that the first two maintain separate entities while vertical integration is the ownership of different stages of production by one firm, such as through a vertical merger.
Step-by-step explanation:
Vertical coordination in business can be categorized into three types:
- Administrative Vertical Coordination: Here, coordination is achieved through direct managerial control.
- Contractual Vertical Coordination: This type is based on contracts among parties at different stages within the supply chain.
- Vertical Integration: This involves ownership and control over multiple stages of production or distribution by a single company.
The key difference between vertical coordination and vertical integration lies in the method of control. Vertical coordination through administrative and contractual means maintains separate business entities working together, while vertical integration unifies different stages of production under a single firm's control. Vertical mergers are a form of vertical integration where companies at different steps of manufacturing join to safeguard against supplier loss and optimize the manufacturing process. To illustrate this with an example, if a car manufacturer buys out a tire company, it ensures a steady supply of tires for its vehicles, which is an instance of vertical integration.