The Contemporary World: MARKET INTEGRATION

Summary

This video script delves into the concept of market integration, defining it as the synchronization of price movements for related goods and services across different markets. It highlights the social benefits, such as increased competition and financial stability, and distinguishes between high and low market integration based on trade barriers. The script also explores types of integration—horizontal, vertical, and conglomeration—with examples like Netflix's vertical integration into content creation. Additionally, it outlines forms of market integration, such as preferential agreements and economic unions, using the European Union as a prime example. The lesson concludes with a review of the primary, secondary, and tertiary sectors of economic systems.

Takeaways

• 🌐 Market Integration is defined as the phenomenon where markets for goods and services experience similar patterns of price increase or decrease.
• 🔍 Market integration occurs when prices of related goods and services in different locations move in similar patterns over time, indicating a single market for those goods or services.
• 📈 Social benefits of market integration include increased competition in financial services, smoothing of economic and financial cycles, and better risk management and financial stability.
• 🛑 High market integration is characterized by low barriers to trade and similar prices across markets, while low integration indicates high barriers to trade and price disparities.
• 🌍 Foreign trade helps in market integration by reducing trade barriers and increasing fluidity between markets, as exemplified by the toy trade between Korea and the Philippines.
• 🔄 There are three types of market integration: horizontal, where firms in the same industry merge; vertical, where a firm controls multiple stages of the production process; and conglomeration, involving diverse or similar business entities under a parent company.
• 🏬 Horizontal integration aims to acquire similar companies to expand market presence, increase market power, and reduce competition, as seen in the mergers of banks and corporate entities in the Philippines.
• 🎥 Vertical integration allows a company to control the supply chain, reduce production costs, and access new distribution channels, as demonstrated by Netflix creating its own content studio.
• 🤝 Conglomeration involves business entities in different or similar industries, like Facebook owning Instagram, WhatsApp, and Messenger, which positions it as a media company despite its self-perception.
• 📝 Forms of market integration include preferential agreements, free trade areas, customs unions, common markets, and economic unions, each with specific characteristics and examples like NAFTA and the EU.
• 🏭 The primary, secondary, and tertiary sectors of the economy represent the extraction of raw materials, transformation into manufactured goods, and provision of services, respectively.

Q & A

What is market integration?

Market integration is a phenomenon where markets for goods and services that are related to one another experience similar patterns of price increase or decrease. It occurs when prices among different locations or related goods follow similar patterns over a long period of time, indicating that the markets are interconnected.

What are the social benefits of market integration?

Market integration has several social benefits, including increased competition in the provision of financial services and investment opportunities, smoothing of domestic economic and financial cycles, and greater risk diversification, which contributes to better risk management and financial stability.

What is the difference between high and low market integration?

High market integration occurs when prices are similar across markets, indicating low barriers to trade. In contrast, low market integration implies high barriers to trade, where prices reflect significant differences between markets.

How does foreign trade help in the integration of markets?

Foreign trade helps in the integration of markets by reducing barriers to trade and increasing fluidity between markets. This can lead to a convergence of prices for goods and services, making markets more integrated.

What are the three types of market integration?

The three types of market integration are horizontal integration, vertical integration, and conglomeration. Horizontal integration occurs when a firm gains control of similar firms in the same industry. Vertical integration happens when a firm performs more than one activity in the marketing process. Conglomeration involves a corporate group with businesses in completely different or similar industries.

Can you provide an example of horizontal integration?

An example of horizontal integration is when a department store merges with a similar store in another country to enter a new market, aiming to increase market power and generate more revenue following the merger.

What is vertical integration and why might a company pursue it?

Vertical integration occurs when a company buys another company involved in the same industry's production process. A company might pursue vertical integration to strengthen its supply chain, lower production costs, capture upstream or downstream profits, and gain access to new distribution channels.

How does Netflix exemplify vertical integration?

Netflix exemplifies vertical integration by starting its own content studio to create original content, which generates more revenue. Initially, Netflix was at the end of the supply chain, distributing films and television shows made by others, but it realized that creating its own content would be more profitable.

What is a conglomerate and can you give an example?

A conglomerate is a corporate group made up of two or more business entities engaged in completely different or similar businesses, usually with a parent company and numerous subsidiaries. An example of a conglomerate is Facebook, which owns Instagram, WhatsApp, and Messenger, and operates as a major distributor of news and information.

What are the different forms of market integration?

The different forms of market integration include preferential agreements, free trade areas, customs unions, common markets, and economic unions. Each form has its own characteristics and implications for trade and economic cooperation among member countries or regions.

Can you explain the concept of a preferential agreement in the context of market integration?

A preferential agreement is formed when countries within a geographical region agree to lower or eliminate tariff barriers on certain goods imported from other members of the area. It allows for more favorable trade conditions among the signatories compared to non-members.

What is the primary sector in an economic system?

The primary sector in an economic system consists of industries that extract raw materials from the natural environment, such as farming and mining. The goal of the primary sector is to provide the basic resources needed for further production processes.

Outlines

00:00

🌐 Introduction to Market Integration

The video script begins with an introduction to the topic of market integration, following a previous discussion on global economy and economic globalization. The speaker defines market integration as a phenomenon where related markets for goods and services experience similar price patterns, indicating a single market for related goods and services. The benefits of market integration include increased competition in financial services, investment opportunities, and better risk management. The script outlines the concepts of high and low market integration, with high integration characterized by similar prices and low barriers to trade, while low integration implies high trade barriers and price differences. The role of foreign trade in reducing barriers and increasing market fluidity is also discussed.

05:02

🔄 Types of Market Integration

This paragraph delves into the three types of market integration: horizontal, vertical, and conglomeration. Horizontal integration occurs when a firm gains control over similar marketing functions at the same level in the market sequence, aiming to expand market share, increase market power, and reduce competition. Vertical integration involves a firm performing multiple activities in the marketing process, with the goal of strengthening the supply chain and lowering production costs. Conglomeration refers to a corporate group with businesses in completely different sectors under a parent company. Examples are provided, such as department store mergers for horizontal integration, Netflix's content creation for vertical integration, and Facebook's ownership of Instagram and WhatsApp for conglomeration.

10:04

📜 Forms of Market Integration

The script outlines the various forms of market integration, starting with preferential agreements, which are formed when countries agree to lower or eliminate tariff barriers on certain goods. Free trade areas, customs unions, and common markets are also discussed, each with their unique characteristics and examples. A free trade area is formed when countries agree to reduce or eliminate trade barriers on all goods. A customs union involves a unified external tariff against non-members, with the European Union as a prime example. Common markets expand free trade to include all economic resources, with the East African Common Market established in 2010 as an example. Lastly, an economic union is described as a trading block with a common market and a common trade policy with non-members, again using the European Union as an example.

15:07

🏭 Review of Economic Sectors

The final paragraph provides a review of the primary, secondary, and tertiary sectors of economic systems. The primary sector involves the extraction of raw materials from the natural environment, such as farming and mining. The secondary sector transforms these raw materials into manufactured goods. The tertiary sector, also known as the service sector, offers services rather than goods. The speaker concludes the lesson by summarizing the content covered and expressing hope that the viewers have gained knowledge, with a promise of continuing the topic in the next video.

Keywords

💡Market Integration

Market Integration refers to the phenomenon where markets for goods and services that are related experience similar patterns of price changes. It is central to the video's theme as it sets the stage for understanding how economic globalization affects pricing and trade. The script uses the example of Korea and the Philippines to illustrate how foreign trade can lead to market integration by reducing prices until they match or almost match across different markets.

💡Economic Globalization

Economic Globalization is the process of increased interconnectedness and interdependence in the world economy. Although not the main focus of this particular script, it is mentioned as a precursor to the discussion on market integration, indicating the broader context in which market integration occurs.

💡Price Patterns

Price Patterns are the trends that prices of goods and services follow over time. In the context of market integration, similar price patterns across different markets indicate a high degree of integration. The script explains that when prices move proportionally to each other, markets are considered integrated.

💡Horizontal Integration

Horizontal Integration occurs when a firm gains control of other firms performing similar marketing functions at the same level in the marketing sequence. The video script uses this concept to explain one type of market integration, where companies merge or acquire similar entities to expand their market presence, as illustrated by the example of department stores entering new markets.

💡Vertical Integration

Vertical Integration happens when a company is involved in more than one step of the production or marketing process. The script explains this concept as a strategy to strengthen supply chains, lower costs, and access new distribution channels, using Netflix as an example of a company that moved from distribution to content creation.

💡Conglomeration

Conglomeration is a form of corporate structure where a parent company has numerous subsidiaries, often in unrelated businesses. The script discusses conglomeration as another type of market integration, highlighting companies like Facebook, which owns Instagram, WhatsApp, and Messenger, as examples of conglomerates.

💡Preferential Agreement

A Preferential Agreement is a trade agreement between countries within a region to lower or eliminate tariff barriers on certain goods. The script mentions this as a form of market integration, providing the example of the RTA (Regional Trade Agreement) which benefits certain industries by allowing them to reduce manufacturing costs.

💡Free Trade Area

A Free Trade Area is formed when countries agree to reduce or eliminate trade barriers on all goods imported from other members. The script uses NAFTA (North American Free Trade Agreement) as an example, illustrating how it creates a zone where trade between the United States, Canada, and Mexico is tariff-free.

💡Customs Union

A Customs Union involves the elimination of tariff barriers between members and the acceptance of a unified external tariff for non-members. The European Union is given as an example in the script, where trade within the EU is tariff-free, and a common external tariff is applied to imports from outside the union.

💡Common Market

A Common Market is an economic union that not only includes the free movement of goods but also services, capital, and labor. The script refers to the East African Common Market as an example, established to boost economic growth and development by removing all barriers to the free movement of economic resources.

💡Economic Union

An Economic Union is a trading bloc with a common market and a common trade policy with non-members. The script explains this as a form of market integration that goes beyond a common market by including a unified policy towards external trade, using the European Union as an example that came into force following the Maastricht Treaty.

💡Primary Sector

The Primary Sector of an economy involves the extraction of raw materials from the natural environment, such as farming and mining. The script briefly reviews this sector as part of the economic systems, indicating its foundational role in the economy before the transformation of raw materials into goods and services.

💡Secondary Sector

The Secondary Sector is concerned with the processing of raw materials into manufactured goods. The script mentions this sector as part of the economic review, highlighting its role in taking raw materials from the primary sector and adding value through production and manufacturing.

💡Tertiary Sector

The Tertiary Sector, also known as the service sector, involves the provision of services rather than the production of goods. The script explains this sector as one that offers services by performing tasks, rather than making physical products, and is a significant part of modern economies.

Highlights

Introduction to the concept of market integration and its significance in the contemporary world.

Definition of market integration by Malcolm Tatum, emphasizing the similarity in price patterns of related goods and services.

Market integration as a phenomenon where prices of related goods and services move proportionally to each other, indicating a single market.

Social benefits of market integration, including increased competition in financial services and investment opportunities.

The role of foreign trade in reducing barriers to trade and increasing market fluidity, exemplified by the toy industry in Korea and the Philippines.

Differentiation between high and low market integration based on the similarity of prices and barriers to trade.

Types of market integration: horizontal, vertical, and conglomeration, with explanations of each.

Horizontal integration explained as control over similar marketing functions at the same level in the marketing sequence.

Vertical integration as a company performing multiple activities in the marketing process, with Netflix as a notable example.

Conglomeration defined as a corporate group with business entities in different or similar industries, exemplified by Berkshire Hathaway and Facebook.

Forms of market integration, including preferential agreements, free trade areas, customs unions, common markets, and economic unions.

Preferential agreements allowing countries to lower or eliminate tariff barriers on certain goods, with RTAs as an example.

Free trade areas formed by countries agreeing to reduce or eliminate trade barriers on all goods, exemplified by NAFTA.

Customs unions characterized by a common external tariff against non-members, with the European Union as a prominent example.

Common markets expanding free trade to include all economic resources, with the East African Common Market as a case study.

Economic unions as trading blocks with a common market and trade policy, again exemplified by the European Union.

Review of the three primary sectors of economic systems: primary, secondary, and tertiary, detailing their roles and functions.

Transcripts

hello good day everyone so tonight we

are down on another topic in the

contemporary world subject so last time

we discussed about the global economy

which tackles about the global or the

economic globalization and also the

economic global actors that facilitated

globalization and tonight or today we

will have another topic which will be

about the market integration and this

video will be the part one so let's

begin to discuss it

[Music]

today we will learn about the market

integration part one and we are going to

discuss the definition of market

integration first and then followed by

the types of market integration its

forms and of course we are also going to

tackle the primary sectors of economy

as a review

so

first let us define what is market

integration

so

though

man you can see here on this picture is

malcolm tatum and he defined market

integration

as a phenomenon in which markets for

goods and services that are in some way

related to one another experience

similar patterns of price increase

or decrease

so this term can refer to a situation in

which

the prices of related goods and services

sold in a specific geographic area begin

to move in a similar pattern

so

that is to say that market integration

occurs

when prices among different locations or

related goods

follow similar patterns over a long

period of time

so groups of prices often move

proportionally to each other

and when such relation is very clear

among the different markets it is said

that markets are integrated so in other

words market integration is a situation

in which the prices of related

goods and services

are

of the same product become one single

market

so

market integration has a number of

social benefits

it includes increasing competition in

the provision of financial services and

investment opportunities

so

another is that it facilitates

the smoothing of domestic economic and

financial cycles and alarm allows for

greater

risk

diversification which contributes to

better risk management and financial

stability

so

market integration basically refers to

how easily two or more markets can trade

with each other thus we have the high

integration and the low integration so

high integration happens

when

prices are similar in the

markets so that means that there is low

barriers to trade so in contrary to that

we have the low integration which means

high barriers to trade so

in this situation prices reflect weight

between the

markets so foreign trade helps the

integration of markets because it

reduces barriers to trade and increases

fluidity between markets so

for example

korea produces toys at a cheaper price

than the philippines so if foreign trade

increased between these two countries

that we have the hurrie and the

and the philippines

then toys can

could be sold to the philippines more

easily thus making them more available

and thus reducing the price

so as the foreign trade increases the

price of toys will continue going down

until it matches or almost matches

korea's toys prices which is the lower

limit so once the prices are similar for

both markets so we have the korea and

the philippines then we can consider the

market as integrated

okay

so

now let's talk about the two types of

market integration oh well we actually

have three so we have the horizontal

the vertical and the conglomeration

okay so for the horizontal integration

as we can see here 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

and another one is of course the

vertical integration where in this

occurs when a firm performs more than

one activity in the sequence of the

marketing process and finally we have

the conglomeration

in the corporate group

made up of two or more business entities

engaged in a completely different or

similar businesses

usually with a parent company and

numerous subsidiaries

okay so let's take um an example so

we have the horizontal integration

so

first

as we can see here a company's primary

goal when pursuing horizontal

integration is to acquire a similar

company in the same industry

and of course it also include other

objectives such as expanding the

economies or the company's market

increasing market power increasing

product or service differentiation and

of course to lower competition so for

example

if a department store wants to enter a

new market it might decide to merge with

a similar one in another country to

begin operations there

so the goal will be to generate more

revenue following the merger so in an

ideal world the company would make more

money than if it were two separate

businesses so that is an example of

horizontal integration

so

in the philippines there are also banks

and corporate mergers and acquisitions

so for instance this 2021 the president

has approved the merge of the landmark

of the philippines or the

lbp

and the ucpb or the unified cocoa

planters bank

so another one is the merge of sm

investment corporations and the to go

group

inc and even

some telecommunication providers

such as the pldt and globe so these

aim to merge to decrease the competition

okay so now let's proceed to the

vertical integration so vertical

integration is

or happens when a company buys another

company that is involved in the same

industries production process

so this can be done for a variety of

reasons

including strengthening company supply

chain

lowering production costs

capturing upstream or downstream profits

and gaining access to new distribution

channels so to achieve this

one company buys another that is either

ahead or behind it in the supply chain

so one of the most notable example of

vertical integration

is in the entertainment industry which

is the netflix

and netflix was at the end of the supply

chain

before is starting its own content

studio because it distributed films and

television shows

made by other content creators but now

netflix executives

realized that creating their own

original content would generate more

revenue so the company's original

content offerings expanded

uh during or in

2013.

okay

now let's have the conglomeration and

for this one as we have said a while ago

this a conglomerate is defined as a

corporate group

made up of two or more business business

entities engaged in completely different

or similar businesses and usually with a

parent company

and numerous subsidiaries

and examples of conglomeration

are the

berkshire hathaway amazon

alphabet facebook proctor and gumball

and

such

um

let's take an example for instance we

have the facebook and we know that

facebook is a social network

and facebook is a conglomerate in it

because it owns a instagram whatsapp

and messenger of course so it can be

seen as a media company

although the uptell us otherwise

so facebook may

not think that it's a media company but

as a major distributor of news

like uh the world's largest of course

since uh this book occurs for uh the

different

countries in the world

so uh it still faces the same

responsibilities that a media company

does so one traditional definition of a

media company

is a company that delivers information

to users

and profits by selling ads next to the

information so by that definition we can

see that facebook is a media company

okay so those are the three

types of market integration again we

have horizontal vertical and

conglomeration now let's talk about the

forms of integration

as you can see here the first is the

prefer a preferential agreement

which um

is or are formed when countries within a

geographical region agree to lower or

eliminate tariff barriers on certain

goods imported from other members of the

area

so

a good example of this one

is the rte or what we refer to as the

original trade agreement

rta is a treaty

between two or more governments that

define the rules of trade for all

signatories so certain industries in the

united states

such as the automobile and electronics

manufacturers

prefer rtas

because they allow them to take

advantage

of lowering

manufacture costs in other parts of the

world while avoiding competition from

european and japanese producers or asia

so which they would face in a multi-uh

multilateral agreement

and

that is an example of a preferential

agreement now let's go to another form

which is the free trade area

and the fdas or the free trade area are

formed when two or more countries in a

region agree to reduce or eliminate

trade barriers on all goods imported

from

other members

a good example of this is the nafta or

the north atlantic free trade agreement

which includes the united states the

canada mexico

and these three countries are example of

such a free trade zone

okay let's go to another form which is

the customs union and a customs union

entails the elimination of tariff

barriers between members

and the acceptance of a single or

unified external tariff against

non-members

so for example we have the european

union

and we know that eu is the most

well-known example

of this one

and trade between eu members

our member states is star free and the

same tariff is paid

regardless of which eu country imports a

product so a customs union is

distinguished

from a free trade area by the common

external tariff or that

what

they call as the cet

so that's the customs union

okay now another form is the common

markets and the common markets defining

feature is the expansion of free trade

beyond tangible goods to include all

economic resources so this means that

all barriers to the free movement of

goods services capital and neighbor are

removed okay so for instance we have the

kenyan uh

president

moi kibaki who established the east

african common market

in 2010 to boost the

region's economic growth and development

so the creation of

a common market in east africa was a

result

of the expansion of existing common

unions or the custom custom unions

which was established in early 2005

and comprise six eastern african

countries

we have the burundi the kenya randa

south sudan tanzania and the uganda

and that

again will be the example of a common

market

all right now let's go to the next one

we have the economic union

which is a term used to

describe a trading block

that has a common market among its

members as well as a common trade policy

with non-members

so despite members freedom to pursue

their own macroeconomic policies

again we have the european union as a

good example of economic union

which came into force in

1993 following the signing of

the treaty on european union or

formerly known as the maastricht uh

treaty

okay so those are the forms of

the market integration so as you can see

um from the definitions and examples of

these forms they have actually

overlapping features to one another

since uh they are

the different forms okay so now let's

try to have a review

so let's try to go back to the three

primary sectors of economic systems so

we have the primary secondary and

the tertiary

so

as we know primary sector

consists of farmers and miners such that

um

were in their goal is to extract raw

materials from the natural environments

and of course

um

we have the secondary sector which gains

the raw materials and transform them

into the manufactured goods and lastly

we have the tertiary goods or the

tertiary sector

which involves services rather than

goods and it offers services

by doing things

rather than making things

alright so that's the end of our lesson

i hope that you learned something for

today okay and i'll see you in our next

video for the second part of our lesson

keep safe and goodbye