How, then, should a downstream channel member consider the issue? It should consider it in the same fashion as we have already discussed for forward integration. In general, vertical integration is a poor idea. In making an exception, the key issue is this: Does the ongoing transaction involve cities in assets that are of great value These may be in any form: know-how, relationships, the creation of brand equity, dedicated capacity, site, and physical facilities. Where these specificities are of value, a con hazard exists. The higher the value of these company-specific capabilities, the more it is worthwhile to provide protection, first in the form of relational contracting and eventually in the form of vertical integration (backward).
Sidebar 9.8 examines how downstream channel members can falter when the vertically integrate for the purpose of assuring themselves sources of supply or lock outlets. Absent specificities, downstream firms risk foundering in a business they do not know or that conflicts with their core business.