The term vertical integration means coordinating the various stages of an industry chain when bilateral trading is just not beneficial. Vertically integrated businesses in a supply chain are united by way of a common owner. Generally each member of the supply chain generates a different product or service. Vertical integration is a dangerous, complicated, expensive, and difficult to reverse strategy. Vertical integration is an approach to prevent the hold-up problem.
Forward Integration
Forward integration refers to a situation when a company controls distribution centers and retailers where its products are sold. In other words, forward (downstream) vertical integration refers to a situation when a company makes a decision to carry out distribution and/or retail functions within the distribution channel. A typical advantage of forward integration is that producers can cut steps in the distribution process and sell higher up in the distribution process. For instance, a firm producing coffee beans could purchase a chain of cafes. Producers can also keep more control over the distribution and pricing of their goods by selling to retailers or consumers directly.