MARKET INTEGRATION AND ITS EFFECT ON PRICE DETERMINATION

AND MARKET DEVELOPEMENT

NARESH KUMAR MEHTAnareshfishco@gmail.com

PHT-PA1-04CENTRAL INSTITUTE OF FISHERIES EDUCATION, MUMBAI

Definition of Market Integration• “It is a process which refers to the

expansion of firms by consolidating additional marketing functions and activities under a single managements” (kohls and Uhl).

• Theme –Centralization of decision making in a single hand

Examples• Setting up of ice storage plant by fish processing

factory• Whole sale facility creation by food retailers

Types of market integration

• Horizontal integration• Vertical integration• Conglomeration

Horizontal integration

• This occurs when a firm or agency gains control of other firms or agencies performing similar marketing functions at the same level in the marketing sequence but different location.

• Maharastra Macchimar Coopearative Society

(Versova Machhimar Society (Thane Machhimar society) (Ratnagiri Machimar Society)

• Such integrations are very commonly found• (PFGF, RBI, SC )• This network enable the organization to

achieve the economies associated with size of the firm.

• It also help the firm to organize some complex type of operations and services which are needed by the local units, they may not perform individually.

Vertical integration• Vertical integration occurs when a firm performs more

than one activity in the sequence of the marketing process.

• It is linking together of two or more functions in the marketing process within a single firm or under a single ownerships.

Vertical integration

Packaging material factory

Ice plant

Cold storage

Fish merchant

(wholeseller)

Depending on the stage at which integration occurs• a) Forward integration-if a firm assume another

function of marketing which close to the consumption function, it is called FI

Ex. Wholeseller assuming function of retailer

• b) Backward integration-this involves ownership or a combination of supply .

Ex. Prcocessing firm assumes function of purchasing the fish directly from landing centre.

Advantage of vertical integration

• This type of integration makes it possible to exercise control over both quality and quantity of the product from

• Vertical integration reduces the number of middleman in the marketing channel.

ConglomerationA combination of agencies or activities not directly

related to each other may, when it operates under a unified management, be termed as conglomeration.

Tata telecom

Tata steel

TCS

Tata salt

Tata group

Degree of integration

1.Ownership integration-this occurs when all, the decision and assets of a firm are completely assumed by another firm

2.Contract integration- this involves an agreement between two firm on certain decision, while each firm retains its separates identity.

Effect of Integration on price

• Integration is an attempt at organizing or co-ordinating the marketing processes to increase operational efficiency and acquire grater power over the selling and /or buying process.

• Due To Integration middle man are reduced and followed by MM earned by them hence, price also will not increase further if market is well integrated.

• Therefore, there will be win win situation for producer and consumer

• Gaining a larger share of market and higher profit.

• Risk reduction through diversification.

• Integration may have positive or negative impact on price , because once single firm takes over the other marketing function as well it will reduce the competitor and increase the monopoly.

• Lowering the cost through achieving operational efficiency.

Effect of Integration on market development

• Market integration provides opportunity to expand market coverage by selling local products in the global market.

• Market integration also help to reduce market faliure• If the market are not well integrated it indicates that

market are not efficient, that will help to form new strategy to develop the market

• Difference in the prices in integrated market should be equal if they are well integrated.

Cont..• The extant of vertical integration in a market

may be assessed by the counting the no. of function performed by each firm in market.

• A two way analysis of prices in spatially separated markets may be used to assess the degree.

• The degree of correlation between price in various markets is taken as an index of the extent to which the two market are integrated.

• Thank you