Which of the following is a drawback of vertical integration in a monopoly?

• A. It always results in lower production costs.
• B. It can lead to increased organizational complexity and inefficiency.
• C. It eliminates barriers to entry for competitors.
• D. It guarantees higher consumer surplus.

Answer: (B)

Verified step by step guidance

1. Understand the concept of vertical integration: it occurs when a firm controls multiple stages of production or distribution within the same industry, often to reduce costs or increase control over the supply chain.
2. Analyze the potential benefits of vertical integration, such as reducing transaction costs, improving coordination, and potentially lowering production costs.
3. Consider the drawbacks of vertical integration, focusing on how managing multiple stages can increase organizational complexity, which may lead to inefficiencies and higher administrative costs.
4. Evaluate the incorrect options: vertical integration does not always lower production costs, does not eliminate barriers to entry (it may actually raise them), and does not guarantee higher consumer surplus since monopolies can still restrict output or raise prices.
5. Conclude that the main drawback among the options is the increased organizational complexity and inefficiency that can arise from managing a vertically integrated monopoly.