Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger. The process can lead to monopoly if a company captures the vast majority of the market for that product or service.
According to Investopedia, while there can be many benefits to horizontal integration, the most obvious benefit is an increased market share for the company. When two companies combine, they also combine their products, technology, and the services that they provide to the market. And when one company multiplies its products, it can also increase its consumer foothold. Along those same lines, companies can benefit from a larger customer base after horizontal integration. By merging two businesses into one, the new organization now has access to a larger base of customers. When a company's customer base increases, the new company can now boost its revenue. Finally, companies that opt for horizontal integration benefit from reduced competition in their industry, increasing the synergy between two companies (including marketing resources), and reducing some production costs. Even though a horizontal integration may make sense from a business standpoint, there are downsides to horizontal integration for the market, especially when they succeed. This kind of strategy faces a high level of scrutiny from government agencies. Merging two companies that operate within the same supply chain can cut down on competition, thereby reducing the choices available to consumers. If that happens, it may lead to a monopoly, where one company plays a dominant force, controlling the availability, prices, and supply of products and services. Big mergers like these are the reason why antitrust laws are in place. Antitrust laws are intended to prevent predatory mergers and acquisitions that may create a monopoly. where one company has too much influence and a high market concentration. After horizontal integration, the new, larger company may take advantage of consumers by raising prices and narrowing product options. Read more...
