Which of the following best describes the difference between vertical and horizontal integration in economics?

• A. Vertical integration involves a firm expanding its control over different stages of production, while horizontal integration involves a firm merging with or acquiring competitors at the same stage of production.
• B. Vertical integration is only used in the service sector, while horizontal integration is used in manufacturing.
• C. Vertical integration increases competition in the market, while horizontal integration decreases competition.
• D. Vertical integration refers to firms merging with competitors, while horizontal integration refers to firms acquiring suppliers.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of vertical integration. Vertical integration occurs when a firm expands its control over different stages of the production process, such as acquiring suppliers (upstream) or distributors (downstream). This allows the firm to manage the supply chain more effectively.
2. Step 2: Understand the concept of horizontal integration. Horizontal integration happens when a firm merges with or acquires other firms that operate at the same stage of production, typically competitors, to increase market share and reduce competition.
3. Step 3: Compare the two types of integration by their focus: vertical integration is about controlling different stages of production, while horizontal integration is about consolidating firms at the same production stage.
4. Step 4: Evaluate the given answer choices by matching them with the definitions of vertical and horizontal integration. The correct description should reflect the control over different production stages for vertical integration and merging with competitors for horizontal integration.
5. Step 5: Conclude that the best description is the one stating that vertical integration involves expanding control over different production stages, and horizontal integration involves merging with or acquiring competitors at the same stage.