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Businessweek Archives

Risks And Rewards Of Vertical Integration

Readers Report


My beliefs on the dangers of vertical integration were taken out of context in "How Lockheed's early-warning system crashed" (News: Analysis & Commentary, Apr. 6), your view of how the proposed merger of Lockheed Martin Corp. and Northrop Grumman Corp. ran afoul of government regulators.

I do indeed believe that vertical integration is dangerous if contractors freeze out competitors by denying them access to components or shut out as sellers those traditional second- and third-tier component suppliers who normally sell to prime contractors.

However, your story failed to include the second part of my argument: that many companies, including the one I have served, Lockheed Martin, have a better solution by acting as merchant buyers and suppliers, i.e., buying and selling to all on an equal basis. The benefit of this approach is clear: Systems ultimately sold to the customer are made up of the best components available. It's what our customers deserve, and it's what our employees and shareholders expect of us.

Simply put, I do agree that the existence of banks can lead to bank robberies. I do not agree, however, that banks should therefore be outlawed.

Norman R. Augustine


Lockheed Martin Corp.

Bethesda, Md.Return to top


Ah, the tautologies economists weave. Gary S. Becker's argument that the market, not trustbusters, should be the judge of Microsoft Corp.'s marketing practices assumes away the question ("Let the marketplace judge Microsoft," Economic Viewpoint, Apr. 6). The question is whether Microsoft's market power is being used to displace competition. Antitrust laws are a principal element in defining the scope of Microsoft's property rights in its software and the limitations on its rights to impose contract limitations on others.

Where a market participant uses government-defined and -enforced contract and property rights to exclude others from exercising their contract and property rights in ways that deny society innovative, productive, and allocative efficiencies--and in ways inconsistent with deeper political and social values of our society--antitrust policy is relied upon. Letting the market sort out the effects of Microsoft's practices when the question is whether the market is being disabled from doing so is at best a silly tautology. If most of your contributors to Economic Viewpoint held sway, government would not interfere with the market to define, protect, and enforce property and contract rights at all.

John J. Flynn

University of Utah College of Law Salt Lake CityReturn to top


Improved earnings at Walt Disney Co.'s theme-park division are the result of an improved economy and an increase in tourism ("Theme-park shootout," The Corporation, Apr. 6). They don't reflect sound management of its parks. Its flagship, Disneyland, has become a dirty, poorly maintained retail location for cheap merchandise. Gone is the ambiance that Walt Disney and his art directors worked so hard to achieve.

Anheuser-Busch, Six Flags Theme Parks, and other operators must be delighted that Disney's shortsighted management has leveled the playing field by dropping down to everyone else's standards. In doing so, Disneyland has lost valuable and loyal repeat customers that it will never be able to woo back.

Bob Burman

Los AngelesReturn to top

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