The competitive advantage potential of vertical integration

Abstract

There is a widely held belief that backward vertical integration provides firms with the potential for a low-cost competitive advantage, and forward vertical integration provides them with the potential for a differentiation advantage. This study builds theory that underpins that belief, and then tests the theory using a sample of large firms. While our findings do not support the relationship between backward vertical integration and low cost, they do provide strong support for arguments linking forward vertical integration with differentiation-based competitive advantage.