What is a horizontal merger?
A horizontal merger (also known as horizontal integration) is when two similar companies, operating in the same industry, combine to form one bigger firm.
This is the opposite of a vertical merger which is when two different companies in the same supply chain combine to form one company.
Where have you heard about horizontal mergers?
Many big companies have acquired competitors through horizontal mergers, for example: Daimler-Benz and Chrysler. In 2016, Groupon Inc. and LivingSocial combined through a horizontal merger, as the two had been rivals in the daily deal industry.
What you need to know about horizontal mergers.
The main advantages of completing a horizontal merger are:
- Potential to increase revenue through offering a wider range of products
- Economies of scale with better access to more resources
- A greater geographical coverage to attract new customers
- Possibility of entering a new market sector
- A greater market share than its competitors, which means greater control over pricing
All mergers are regulated by national organisations like the European Commission and the US Federal Trade Commission. These bodies ensure that the merger won’t have an adverse effect on consumers, such as a pricing monopoly or adversely reducing competition.