The Contemporary World: MARKET INTEGRATION
Summary
TLDRThis 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 integrationβhorizontal, vertical, and conglomerationβwith 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
- π Market Integration is defined as the phenomenon where markets for goods and services experience similar patterns of price increase or decrease.
- π 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.
- π Social benefits of market integration include increased competition in financial services, smoothing of economic and financial cycles, and better risk management and financial stability.
- π 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.
- π 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.
- π 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.
- π¬ 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.
- π₯ 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.
- π€ 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.
- π 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.
- π 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
π 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.
π 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.
π 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.
π 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.
Mindmap
Keywords
π‘Market Integration
π‘Economic Globalization
π‘Price Patterns
π‘Horizontal Integration
π‘Vertical Integration
π‘Conglomeration
π‘Preferential Agreement
π‘Free Trade Area
π‘Customs Union
π‘Common Market
π‘Economic Union
π‘Primary Sector
π‘Secondary Sector
π‘Tertiary Sector
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
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