Horizontal Integration

Horizontal integration refers to the acquisition of added businesses, which are at the same value chain level. In simple words, horizontal integration refers to that situation where an existing business enterprise undergoes expansion via foraying into products, which toe the existent product line. For instance, a vendor of hot dogs is said to undertake a horizontal integration when he expands business by foraying into sale of hamburgers. Horizontal integration is concept-wise just opposite of vertical integration (where firm expansion occurs in downstream or upstream activities). Horizontal growth is achieved either via external expansion or internal expansion, through the process of mergers and acquisitions of business enterprises, which sell the same kind of products or services. Some instances of horizontal integration are given below.

• An oil company’s acquisition of refineries
• A media house’s ownership of magazines, radio, newspapers and television
• An automobile manufacturing company’s acquisition of a company, which manufactures sport utility vehicles

Horizontal Integration Advantages

Horizontal integration renders a host of benefits to business firms. Some of them are mentioned below.

• Economies of scale
• A decline in the costs of international trade
• Economies of scope
• Increased market power

Economies of scale are obtained by selling added quantities of same products say via geographical expansion. Economies of scope or synergies arise through the share of common resources for different commodities.

Horizontal Integration Pitfalls

Some pitfalls may emerge from the very nature of horizontal integration. For instance, though horizontal integration may augment a firm’s market share by acquisition of competitors, it may also lead to anti-trust proceedings against that firm in case there occurs a substantial rise in industry concentration. This is a legal pitfall. One pertinent economic question is that, whether anticipated economic gains of horizontal integration will actually be realized in practice. Before entering into horizontal integration, firms need to thoroughly check for the existence of concerned synergies.

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