Vertical integration through internal expansion is not vulnerable to legal challenges. However, if the vertical integration is achieved through a merger, it may, from the outset, be vulnerable to a challenge under the confines of antitrust laws.

Vertical integration through a merger is subject to the provisions laid out in the Clayton Antitrust Act of 1914, which governs transactions that fall under the umbrella of antitrust law. The Act provides substance and clarification to the Sherman Antitrust Act of 1890. With the Clayton Antitrust Act, if a legal challenge is made, the courts make a decision on the legality of the merger on the basis of whether the vertical integration unduly harms competition in the marketplace. The courts reach this decision by weighing the pro-competitive and anti-competitive factors associated with the vertical integration on an individual case-by-case basis.

Factors considered are the likelihood of changes in the patterns of industry behavior caused by the vertical integration. Some examples of these changes are if a supplier is likely to lose a market for its goods, if retail outlets are refused certain supplies or if competitors find their avenues to supplies or resources blocked. Vertical integrations may also be considered uncompetitive if they grant one company such entrenched market power that it discourages new competitors from entering that particular marketplace.

The Supreme Court has made three decisions on the topic of vertical integration. In the first case, United States v. E. I. du Pont de Nemours & Co, the judges ruled that the vertical integration was illegal. This was because the Supreme Court found that the 23% acquisition of General Motors foreclosed the sales to General Motors by other suppliers of automotive paints and fabric. This was viewed as being unduly harmful to competition in the marketplace.

In Ford Motor Co. v. United States, Ford Motors wished to acquire a company called Autolite. This business manufactured spark plugs. The action was condemned on the basis that the vertical integration would entrench too much market power in the company and thus discourage other competitors from entering the marketplace. Ford Motors attempted to argue that the acquisition would make Autolite a more effective company but this was dismissed by the Supreme Court, which saw the potentially anti-competitive effects of the vertical integration as a more important concern.

There have been cases where vertical integration has been used to fix prices for price maintenance. Resale price maintenance definitely causes legal obstacles as it is an explicit violation of antitrust laws. The legal penalties for price maintenance are severe. In 1989, Panasonic had to repay $16 million to consumers who paid 5-10% more than they ought to have paid because of price fixing.