Horizontal Boundaries - The company's horizontal boundaries are primarily intended to identify the quantities and varieties of products and services it produces. Economies of scale and scope mainly arise from a few reasons such as inventory, increased productivity of variable inputsSources of Economies of Scale and Scope-1-Economies of Scale and Scope in Purchasing2-Economies of scale and scope in advertising3-Economies of scale and scope in research and developmentVertical integration is most attractive when the ability of outside market specialists is relative to the company itself to achieve scale or the scope, the greater the scale of the business. Advantages and Costs of Using Marketplace 1) Marketplace companies can achieve economies of scale than internal departments only for their own needs. 2) Market firms are subject to discipline markets and must be efficient and innovative. 3) Many types of costs may be involved, such as transaction costs (costs of using the market that are saved through direct management centralized), inventory, labor cost, etc. Vertical integration changes the pattern of ownership and control of assets and also changes the bargaining power between parties in a vertical relationship. This will be more attractive when there are large asymmetries in the importance of relationships. Competitive advantage – Creating a competitive advantage based on a position of differentiation is likely to be attractive when there are untapped opportunities to achieve scale, scope and learning. There are different types of approaches to estimate the advantageous position of the company.2) Conjoint analysis3) Attribute evaluation methodCompanies can also be linked together in cooperative relationships within sustainable networks. The long term...... middle of paper ...... rights (rights not specified in contracts).• Vertical integration transfers residual control rights to the company.• With comprehensive contracts, it doesn't matter who owns the assets in the vertical chain. Governance and Vertical Integration • Use of marketplace firms leads to contractual inefficiencies • Vertical integration replaces contracting with governance • Delegation of decision rights and control of assets occurs within the firm rather than between companies. • Poor governance may negate the benefits of vertical integration • Post-merger conflicts may not allow cooperation between the managers of the acquirer and the acquired company. Alternatives to vertical integration-1. Tapered integration (make some and buy the rest)2. Joint ventures and strategic alliances3. Semi-formal collaborative relationships based on long-term implicit contracts between companies