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Suppose a firm uses sugar in a product that you purchase. The firm vertically integrates by purchasing sugar firms that produce the sugar organically and in a way that makes it also sustainable for the environment.

Instructions

Suppose a firm uses sugar in a product that you purchase. The firm vertically integrates by purchasing sugar firms that produce the sugar organically and in a way that makes it also sustainable for the environment. How would that influence your demand for that product? What other purpose than profitability might cause the firm to make this decision to vertically integrate in this way?

Answer

Suppose a firm uses sugar in a product that you purchase.

By: Essayicons.com

A firm that uses sugar in a product that I consume and vertically integrates by purchasing sugar firms that produce the sugar organically and in a way that makes it also sustainable for the environment would make my demand for the product go higher. First, knowing that the firm vertically integrates by purchasing sugar firms committed to organic production and environmental sustainability enhances my perception of the firm’s environmental awareness and responsibility. Secondly, vertical integration ensures that the firm has control over the production and the supply chain. This control ensures that the sugar produced is of high quality, making the product I purchase safe for consumption. Moreover, organic production means that there is little to no chemical usage in the production of the sugar, and this enhances health-conscious consumer preferences, increasing the overall appeal of the product consumed, thus increasing the demand. Lastly, aside from the environmental sustainability awareness reasons, as a consumer who prioritizes ethical and co-friendly choices, producing a sustainable product for the environment would certainly increase my demand for the product.

Other than profitability, one of the reasons why the firm might decide to vertically integrate this way is to ensure long-term sustainability. This decision would ensure the availability of quality sugar for its product in the future since it controls the production. Another purpose for this decision would be to ensure that the firm gains control over the supply chain. Vertical integration would ensure that the firm has greater control over the whole supply chain, and this control would reduce the firm’s dependence on external suppliers. This move would alleviate the risks involved with fluctuations in sugar prices or potential sugar supply disruptions. Focusing on and prioritizing sustainable and environmentally friendly measures also improves the firm’s brand reputation.   

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