Horizontal Integration - Explained
What is Horizontal Integration?
Written by J. Mance Gordon
Updated at April 21st, 2024
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What is Horizontal Integration?
In the simplest terms, horizontal integration is the process of procurement of a commercial entity that has been functioning at a similar echelon. The entity may belong to a similar or a different industry. Unlike vertical integration, horizontal integration does not entail a business procuring another business entity that is in a dissimilar stage of production.
How Does Horizontal Integration Work?
The primary objective of horizontal integration is to enhance production efficiency, create market domination in the production and distribution arenas, enhance product differentiation and explore newer horizons. Often, two business entities perform better in generating revenue as a merger than they would have been able to on their own.
The negative aspect to a successful horizontal merger is a potential reduction of market competition. Horizontal integration within an industry will result in a company or a small number of companies controlling the industry. This can lead to either a market monopoly or an oligopoly. In fact, this institutional control of the market has led to the formation of antitrust laws to protect the consumer.
Examples of Horizontal Integration
Examples of horizontal integration in the 21st century include:
- Hewlett Packards acquisition of Compaq
- Fiats acquisition of Chrysler to form Fiat Chrysler Automobiles N.V
- Facebooks acquisition of Instagram and WhatsApp
- Kraft Foods acquisition of Cadbury
- Pfizers acquisition of Wyeth
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