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Why Vertically Integrate?

There are other reasons for this vertical integration besides increased market share. These mammoth conglomerates create a tightly secured network by purchasing forwards and backwards in the supply chain, buying new labels, manufacturing companies, and distributing companies. Their established distribution systems have become highly elaborate and expensive creating a barrier to entry within the industry. No small firms can enter and compete because it is too difficult to establish themselves to compete against the giants. Therefore, the giants maintain a competitive advantage by being able to dominate and sometimes even manipulate the industry.

Why Horizontally Integrate?

Why, then, would these giants also seek to horizontally integrate if they already own more than 80% of the industry? We have to consider that these large companies are also competing against each other. To do this, they must each find an unconquered niche within the music industry and try to secure it for themselves. They might do this by specializing in one genre of music such as country music or by conquering a new market in a new country. By buying all the labels in a certain genre or by establishing another distribution channel in a rising market, these huge companies can maintain a competitive advantage over their competitors.

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Last Update: April 5, 2000