7.4 The Make or Buy Decision
Managers make many decisions that affect the horizontal and vertical dimensions of a firm’s organization. The horizontal dimension refers to the size of the firm in its primary market, while the vertical dimension refers to the various stages of the production process in which the firm participates.
To produce a good and sell it to consumers involves many sequential stages of production, marketing, and distribution activities. A manager must decide how many stages the firm itself will undertake. At each stage, a manager chooses whether to carry out the activity within the firm or to pay for it to be done by others. Deciding which stages of the production process to handle internally and which to buy from others is ...
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