What are some cost saving motives for vertical integration? And what has asset specificity to do with anything?

Companies can choose to secure supplies of inputs through backward integration - the purchase of suppliers. Asset specificity occurs when firms are interdependent due to investments in specific assets Especially interesting for bilateral monopoly: upstream firm invested capital to supply the downstream business, and downstream firm is dependent on the upstream product. Production takes place therefore at lowest marginal costs, but there might be dispute of how to share the profits; the price will then lie between monopoly price and competitive market. A vertical integration between these companies can optimize output and increase profits. The optimal point is where marginal revenue at the retail level corresponding to marginal costs at producer level - effectively double marginalization again. Asset specificity may be symmetric; but also unilateral, so that only one party has invested in specific assets connection. This may lead to a so called 'hold-up' problem: one party is dependent on the other; but the reverse is not true. If a manufacturer of hospital equipment 'forcing' a hospital to invest in infrastructure and equipment that can be used only when the company is a supplier, there is a hold-up problem.