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Riordan examines a situation where there is a downstream dominant firm plus a competitive fringe and shows how backward vertical integration can lead to higher prices upstream and downstream.
Gross margins of the company are expected to improve because of the backward vertical integration. However, we expect profitability to drop in the year 2009.
By combining Matrix' active pharmaceutical ingredient (API) and drug development business with Mylan's expertise in finished dosage forms (FDFs), the transaction also will allow Mylan to capture incremental pieces of the value chain through backward vertical integration.
Because of the fact that the magnetic resonance business is so concentrated, its backward vertical integration strategy seems quite appropriate.
For backward vertical integration, "high" means a unit whose sales contribute to a large fraction of the total purchases of the unit or units downstream.
BACKWARD-VI = Backward vertical integration of the unit (degree to which it sells to other units of the firm).
No significant difference was found between the mean relative weights of backward vertical integration and cost of divestment, or between operating fit and marketing fit.
Forward vertical integration of the business unit was the most important deterrent to its divestment, followed by backward vertical integration, cost of divestment, and operating and marketing fit.
As Harrigan (1985b) pointed out, however, the phase of the product life cycle is important, and can change the relative importance of forward and backward vertical integration. While forward integration raised a greater barrier during decline, there was no significant difference between forward and backward integration during the mature phase.

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