The costs of using the market can be avoided
if a firm becomes vertically integrated and
assumes the burden of co-ordinating economic
activity internally through within-firm
managerial direction. However, this means
that a firm must assume the alternative costs
of administering vertical flows of products and
organizing factors of production. Provided
that a firm can carry out these activities internally
at a lower cost than would be the case if
the transaction were co-ordinated through an
open market, then one would expect, all other
things being equal, the organization of economic
activities to be carried out by a vertically
integrated firm