Vertical integration is not always more efficient than the
marketplace, however. When highly vertically integrated
firms become excessively large and bureaucratic, the costs
of managing the internal transactions may become greater
than simply purchasing the needed goods externally—thus
justifying outsourcing over ownership. The usually hidden
management costs (e.g., excessive layers of management,
endless committee meetings needed for interdepartmental
coordination, and delayed decision making due to excessively
detailed rules and policies) add to the internal transaction
costs—thus reducing the effectiveness and
efficiency of vertical integration. The decision to own or to
outsource is, therefore, based on the particular situation
surrounding the transaction and the ability of the corporation
to manage the transaction internally both effectively
and efficiently.