Market Integration

Group Members:
Abao, Jhasel Anne F.
De Leon, Jovy Ann
De Leon, Shanna F.
Mercado, Jenesil Y.
Paglinawan, Archie T.
Seguira, Aliaster
Ferrer, Czairine
Content

 Types of market integration

 Examples for market integration types
 Effects of market integration types
 Advantages and disadvantages of types of market integration.
 Reasons for market integration
 Degree of market integration
 Measurement of market integration
Market Integration
• Integration shows the relationship of the firm in a market. The extent of integration
influences the conduct of the firms and consequently their marketing efficiency.
• The behaviour of a highly integrated market is different from that of a disintegrated
market.
• Markets differ in the extent of integration and therefore,there is a variation in their
degree of efficiency.
• Kohls and uhl have defined market integration as a process which refers to the
expansion of firms by consolidating additional marketing functions and activities
under a single management.
Examples of market integration are the establishment of wholesaling facilities by
food retailers and the setting up of another plant by a milk processor.
Types of Market Integration
There are three basic kinds of market integration;

1.Horizontal integration.

2.Vertical integration.

3.Conglomeration.
1.Horizontal integration
• In this type of integration, some
marketing agencies combine to form a
union with a view to reducing their
effective number and the extent of
actual competition in the market.
• It is advantageous for the members who
join the group.
Example:independent oil refineries coming
under U.S oil company
Effects of Horizontal integration

• Buying out a competitor in a time

bound way to reduce competition.
• Gaining larger share of the market
and higher profits.
• Attaining economies of scale.
• Specializing in the trade.
Advantage of Horizontal integration
(1)Lower costs.
(2)Higher efficiency.
(3)Increased differentiation.
(4)Increased market power.
(5)Reduced competition.
(6)Access to new markets.
(7)Economics of scale.
(8)Economics of scope.
(9)International trade.
Disadvantage of the Horizontal integration
(1)Destroyed value.
(2)Legal repercussions.
(3)Reduced flexibility.
Companies using Horizontal integration
2. Vertical integration
• This type of integration makes it
possible to exercise control over
both quality and quantity of the
product from the beginning of
the production process until the
product is ready for the
consumer.
• It reduces the number of middle
men in the marketing channel.
Arrangement of Vertical integration
Example: Purchase of Companies at A ll
Levels of Production
• Forward integration If a firm assumes another function of marketing
which is closer to the consumption function, it is a case of forward
integration
• Backward integration This involves ownership or a combination of
sources of supply
• Balanced vertical integration The third type of vertical integration is a
combination of the backward and the forward vertical integration
Advantages of Vertical integration;
1. It allows you to invest in assets that are highly specialized.
2. It gives you more control over your business.
3. It allows for positive differentiation.
4. It requires lower costs of transaction.
5. It offers more cost control.
6. It ensures a high level of certainty when it comes to quality.
7. It provides more competitive advantages.
Disadvantage of Vertical integration
1. It can have capacity-balancing problems.
2. It can bring about more difficulties.
3. It can result in decreased flexibility.
4. It can create some barriers to market entry.
5. It can cause confusion within the business.
6. It requires a huge amount of money.
7. It makes things more difficult.
Effects of Vertical integration
• More profits by taking up additional functions
• Risk reduction through improved market co- ordination
• Improvement in bargaining power and the prospects of influencing
prices
• Lowering costs through achieving operational efficiency
3.Conglomerian
A combination of agencies or
activities not directly related
to each other may, when it
operates under a unified
management, be termed a
conglomeration.
Examples:
• Hindustan unilever ltd.
• Delhi cloth and general mills.
• Birla group.
• Tatas.
• J.K.group.
• ITC. And
• NAFED.
Effects of Conglomeration
• Risk reduction through diversification
• Acquisition of financial leverage
• Empire – building urge.
Reasons for market integration
• To remove transaction costs
• Foster competition
• Provide better signals for optimal generation and consumption
decisions.
• Improve security of supply
Degree of market integration
• Ownership integration

Example: a processing firm which buys a wholesale firm

• Contract integration
Example: tie up of a dhal mill with pulse traders for supply of pulse
grains.
Measurement of market integration

The measurement or assessment of the extent of market integration is

helpful in the formation of appropriate policies for increasing the
efficiency of marketing process.

The measurement or assessment of market integration may be

attempted at two levels.
1) Integration among firms of a market.
2) Integration among spatially seperated markets.
1) Integration among firms of a market.
• The extent of vertical integration in a market may be assessed by
counting the number of functions performed by each firm in the
market.

• The extent of horizontal integration may be measured by studying the

number of firms performing the same marketing function but
operating under one common management.
2) Integration among spatially seperated markets.

• The extent to which prices in spatially seperated markets move

together or are related to transport costs reflects the degree of
integration.

• A two-way analysis of prices in spatially seperated markets may be

used to assess the degree of integration.
1) Price correlations.
2) Spatial price differential and Transportation costs.
1) Price correlations.

• The degree of correlation between two prices is taken as an index of

the extent to which the two markets are integrated.

• A higher degree of correlation coefficient indicates a greater degree

of integration atleast in terms of the pricing of the product between
market centres and vice versa.

• The correlation in the price of commodity in any markets is unity

under spatial price integration.
2) Spatial price differential and Transportation costs.

• Correlation method.

• Ravallion procedure.

• Co integration approach.

• Parity bound models (PBM).