I. Overview

II. Horizontal Integration

1. Benefits of Horizontal Integration
   1. Reducing Costs
   2. Increasing Value
   3. Managing Industry Rivalry
   4. Increasing Bargaining Power
2. Drawbacks and Limits of Horizontal Integration

III. Vertical Integration

1. Increasing Profitability Through Vertical Integration
   1. Building Barriers to Entry
   2. Facilitating Investments in Specialized Assets
   3. Protecting Product Quality
   4. Improved Scheduling
2. Arguments Against Vertical Integration
   1. Cost Disadvantages
   2. Technological Change
   3. Demand Unpredictability
3. Bureaucratic Costs and the Limits of Vertical Integration

IV. Alternatives to Vertical Integration: Cooperative Relationships

1. Short-Term Contracts and Competitive Bidding
2. Strategic Alliances and Long-Term Contracting
3. Building Long-Term Cooperative Relationships
   1. Hostage Taking
   2. Credible Commitments
   3. Maintaining Market Discipline

V. Strategic Outsourcing

1. Benefits of Outsourcing
   1. Reducing Costs Through Outsourcing
   2. Differentiation Through Outsourcing
   3. Focus Through Outsourcing
2. Identifying and Managing the Risks of Outsourcing
   1. Holdup
   2. Scheduling of Activities
   3. Loss of Information