[On Apple’s integrated organizational structure]
Normally, in well-functioning markets, vertical integration is suboptimal. However, if transaction costs in the vertical chain outweigh the losses due the inefficiencies of being vertically integrated, then vertical integration could be the correct course of action.
Apple thinks the exact same way, but not about monetary cost; instead, the transaction costs they consider are the tax that modularization places on the user experience, and it is a cost they are not willing to bear.
- Ben Thompson, Apple and the Innovator’s Dilemma