Reasons to vertically integrate Volumetric interdependence, thin marktes, and th

Question

Reasons to vertically integrate Volumetric interdependence, thin marktes, and the risk of opportunism are all reasons why a firm might choose to vertically integrate, rather than buy, the inputs to production elsewhere. In the scenario below, determine which of these reasons for vertical intergration is described. U.S. Steel requires large quantities of ore to produce its final product. The company can either build its own steel mills or devise contracts with existing mill owners. If it chooses to enter into contracts, the mill owners may make unreasonable demands of U.S. steel, has few or no alternative means of casting the molter steel. Which of the following refers to the problem posed by this kind of behavior? Risk of opportunism Volumetric interdependence Thin markets

Explanation / Answer

Option C, thin markets.

Thin markets is a market with only few buyers and sellers or in other words its a narrow market. Vertically intergrating would mitigate the risk of the contractors demanding unreasonablly U.S steels.

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