MARKET

INTEGRATION
MARKET INTEGRATION
Occurs when prices among different locations
or related goods follow similar patterns over a
long period of time. Groups of prices often
move proportionally to each other and when
this relation is very clear among different
markets it is said that the markets are
integrated.
1. 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.
2. Examples of market integration are the
establishment of wholesaling facilities by food
retailers and the setting up of another plant by a milk
processor.
3. In each case, there is a concentration of decision
making in the hands of a single management.
TYPES OF MARKET INTEGRATION
There are three basic kinds of market
integration:

1. Horizontal integration.
2. Vertical integration.
3. Conglomeration.
This occurs when a firm or agency
gains control of other firms or
agencies performing similar
marketing functions at the same level
in the marketing sequence
HORIZONTAL
In this type of integration, some INTEGRATION
marketing agencies combine to form
a union with a view to reducing their
effective number and the extent of
actual competition in the market.
 PARENT AGRIBUSINESS FIRM

FIRM FIRM FIRM FIRM

A B C D
1.In most markets, there is a large number of
agencies which do not effectively compete
with each other.
2.This is indicative of some element of
horizontal integration.
3.It leads to reduced cost of marketing.
4.In this reduced competition possible.
EXAMPLE: Independent oil refineries coming under U.S
oil company
EFFECTS OF HORIZONTAL INTEGRATION
1.Buying out a competitor in a time bound way
to reduce competition.
2.Gaining larger share of the market and higher
profits.
3.Attaining economies of scale. Specializing in
the trade.
4.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.
ADVANTAGE OF HORIZONTAL INTEGRATION

1.Destroyed value.
2.Legal repercussions.
3.Reduced flexibility.
COMPANIES USING HORIZONTAL INTEGRATION
COMPANIES USING HORIZONTAL INTEGRATION
COMPANIES USING HORIZONTAL INTEGRATION
This occurs when a firm or agency
gains control of other firms or
agencies performing similar
marketing functions at the same level
in the marketing sequence
VERTICAL
In this type of integration, some INTEGRATION
marketing agencies combine to form
a union with a view to reducing their
effective number and the extent of
actual competition in the market.
 PARENT AGRIBUSINESS FIRM

WHOLESALING TRANSPORT FOOD GRAINS

OF FEED FEED MILL AGENCY TRADE
Example: Meat industry buys all the functioning plants
needed for running this meat industry
A). FORWARD INTEGRATION
If a firm assumes another function of marketing
which is closer to the consumption function, it
is a case of forward integration. Example:
wholesaler assuming the function of retailing
B) BACKWARD INTEGRATION
This involves ownership or a combination of
sources of supply.
Example: when a processing firm assumes the
function of assembling/purchasing the produce
from the villages.
• BALANCED VERTICAL INTEGRATION
The third type of vertical integration is a
combination of the backward and the forward
vertical integration.
ADVANTAGE 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
1. More profits by taking up additional functions
2. Risk reduction through improved market
coordination
3. Improvement in bargaining power and the prospects
of influencing prices
4. Lowering costs through achieving operational
efficiency
A combination of agencies or
activities not directly related to
each other may, when it
operates under a unified CONGLOMERATION
management, be termed a
conglomeration.
This occurs when a firm or agency
gains control of other firms or
agencies performing similar
marketing functions at the same level
in the marketing sequence
CONGLOMERATION
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.
 AGRI-BUSINESS CONGLOMERATE
SALES AND
REPAIRS OF
FOODGRAINS FRUIT RETAIL CLOTH ELECTRONIC MANUFACTURE
TRADE PROCESSING CHAIN MILL GOODS OF VANASPATI
AGRI-BUSINESS CONGLOMERATE
HINDUSTAN UNILEVER ITD.
DELHI CLOTH AND GENERAL MILLS.
BIRLA GROUP
TATAS.
J.K.GROUP.
ITC.
NAFED.
EFFECTS OF CONGLOMERATION

1.Risk reduction through diversification

2.Acquisition of financial leverage
3.Empire – building urge.
REASONS FOR MARKET INTEGRATION

1.To remove transaction costs

2.Foster competition
3.Provide better signals for optimal
generation and consumption decisions.
4.Improve security of supply
DEGREE OF INTEGRATION

Ownership integration This occurs when

all the decisions and assets of a firm are
completely assumed by another firm.
Example: a processing firm which buys a
wholesale firm.
DEGREE OF INTEGRATION

Contract integration This involves an

agreement between two firms on certain
decisions, while each firm retains its
separate identity.
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 separated markets.
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.
INTEGRATION AMONG FIRMS OF A 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.
INTEGRATION AMONG FIRMS OF A MARKET
 The result of a study on the exsistence of
vertical and horizontal integration in the
marketing of wheat in eight main wheat
producing districts of Rajasthan revealed
that about half of the marketing firms
(50.5%) were integrated vertically because
they performed two or three functions.
INTEGRATION AMONG SPATIALLY
SEPARATED 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.
PRICE CORRELATION
• 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.
PRICE CORRELATION
• The correlation in the price of commodity in
any markets is unity under spatial price
integration.
 SPATIAL PRICE DIFFERENTIAL AND
TRANSPORTATION COSTS.

• Correlation method.
• Ravallion procedure.
• Co integration approach.
• Parity bound models (PBM).
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