Vertical

The idea of vertical integration sounds great, eh?

Many followers have the same romantic idea of controlling the entire supply chain of a product - from raw material to production to retail selling. In real life, unfortunately, this strategy is hardly successful (and the Apple Inc is the rare counter-example).

The reason is simple. When every step is under the same final boss, the sales of an upstream step is guaranteed, and there is no motivation for improving the performance; poor quality product, or service, would persist because there is no extrinsic competition.

Oh, yes, you see that: The most dramatic example of vertical monopoly - and its pitfalls - in macro-economics is communism. When the government owns every steps of the economy and the steel from your backyard furnace could find a buyer, who would have the incentive of trying a better method?

In that case, why is Apple successful?

There are several reasons:

1. Apple Inc is not truly vertically integrated; production of hardware is outsourced. (By the way, that's the achievement of Tim Cook.)
2. Vertical integration typically works well when the industry involves high investment and great uncertainty.
3. And it works best when the final product has a disproportionate brand name.