How can forward vertical integration impact profits?

Forward vertical integration occurs when a company expands its operations to include activities that are further along the supply chain, such as distribution or retail. This strategic move can directly influence profitability by eliminating the costs associated with middlemen. When a company takes on these additional functions, it can streamline operations and retain more of the revenue that would otherwise go to intermediaries.

By cutting out middlemen, businesses can reduce operational costs, increase control over pricing and customer relations, and enhance efficiency. This consolidation often leads to better profit margins because the business is capturing a larger share of the total value generated from its products or services. Additionally, having direct control over distribution channels can enhance the ability to respond to market demand and manage customer relationships more effectively, further contributing to potential profit increases.

The other choices do not align with the advantages associated with forward vertical integration. For example, increasing supplier dependency could pose risks to supply chain stability, reducing sales opportunities contradicts the intent of expanding market reach, and enhancing competition is generally not a direct outcome of vertical integration as it tends to create more market power for the integrating entity. Therefore, the correct answer reflects a well-understood benefit of forward vertical integration in the context of profit enhancement.