Pros And Cons Of Vertical Integration

Vertically integration, can be an important strategy, but often times it is difficult to implement successfully. Furthermore, if the company decides that the integration was the wrong strategy for the company, it can be very expensive to fix. According to Stuckey & White (1993), “vertical integration typically reduces some risks and transaction costs, but it requires heavy setup costs, and its coordination effectiveness is often dubious. However, a vertical market "fails" when transactions within it were too risky and the contracts designed to overcome these risks are too costly (or impossible) to write and administer” (p.3). Obviously, there are pros and cons with integration. However, the question for Netflix is, does the pros outweigh the cons. Vertically integration, is akin to a company owning manufacturing, plus a large amount of the supply chain. …show more content…
Moreover, a positive of vertically integration, would eliminate its dependence on the studios. According to Lueng (2016), “with a total revenue in excess of $6.7 billion reported after the end of Q4 2015, it would seem that Netflix doesn't have an issue with cash flow. However, in reality, Netflix hemorrhages money due to the exorbitant overhead of licensing titles and marketing expenses. Furthermore, Netflix continues to replace expired titles with others while also producing new original content. Integration, would open Netflix up to a new market, which in turn would give it a competitive advantage over its competition. Consequently, by providing additional services, integrated companies would be able to lower costs to consumers”