Term used to denote the level of ownership or control possessed by a commercial entity over all essential aspects of the market or market sector in which it operates. The degree to which a company can control all activities and resources required within its market or sector, from production to sale and all points in between, is its degree of vertical integration.
This term has recently come to be associated with information technology and media companies, but it has been in common use in the energy industry for many years. A vertically integrated energy company is one that owns or controls generating facilities, transmission facilities, distribution lines, customer access equipment and billing and accounting services.
Prior to industry deregulation, energy companies were largely vertically integrated entities, and were largely expected to be capable of delivering all services needed to provide electricity. Deregulation of the energy industry has encouraged competition in many areas and forced vertically integrated companies to disaggregate (sell off) many facets of their businesses to remain both competitive and within the law.
See also:disaggregation, unbundled services, deregulation