Which One of the Following Statements About Backward Vertical Integration

question 38

Multiple Choice

Which one of the following statements about backward vertical integration is false?

• A)What makes backward vertical integration such an attractive strategic option is the opportunity to capture the profit margins of suppliers and thereby increase the company's own profitability.
• B)Backward vertical integration can produce a differentiation-based competitive advantage when a company,by performing activities internally rather than utilizing outside suppliers,ends up with a better-quality product/service offering,improves the caliber of its customer service,or in other ways enhances the performance of its final product.
• C)For backward integration to be a viable and profitable strategy,a company must be able to (1)achieve the same scale economies as outside suppliers and (2)match or beat suppliers' production efficiency with no drop in quality.
• D)The best potential for being able to reduce costs via a backward integration strategy exists in situations where suppliers have outsized profit margins,where the item being supplied is a major cost component,and where the requisite technological skills are easily mastered or can be gained by acquiring a supplier with the desired technological know-how.
• E)Potential advantages of backward integration include sparing a company the uncertainty of being dependent on suppliers for crucial components or support services and lessening a company's vulnerability to powerful suppliers inclined to raise prices at every opportunity.

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Definitions:

Shortage

A condition where the demand for a product exceeds its supply in the market.

Ceiling Price

Ceiling price is a legally imposed maximum price on goods or services, above which transactions cannot legally occur, often implemented to prevent price gouging during shortages.

Maintenance

The upkeep and repair of machinery, equipment, and buildings to ensure their optimum working condition.

Shortage

A market condition occurring when the demand for a product or service exceeds the supply available at a specific price.