Advantages And Disadvantages Of Vertical Integration

In business, horizontal integration is a strategy where a company creates or acquires production units for outputs which are alike - either complementary or competitive. The acquisition of this additional business activity is at the same level of the value chain in similar or different industries. This can be achieved by internal or external expansion. Because the different firms are involved in the same stage of production, horizontal integration allows them to share resources at that level. If the products offered by the companies are the same or similar, it is a merger of competitors. If all of the producers of a particular good or service in a given market were to merge, it would result in the creation of a monopoly.

Horizontal Integration …show more content…
All of these are great examples, two companies of similar size and operation, operating in the same industry, combined to form a stronger company. Horizontal integration offers several advantages, including favourable economies of scale, economies or scope, increased market power and reduction in the costs associated with international trade by operating in foreign markets. Horizontal integration is in contrast to vertical integration, where firms expand into different activities, known as upstream or downstream activities.
Horizontal integration is related to horizontal alliances (or horizontal cooperation). However, in the case of a horizontal alliance, the partnering companies set up a contract, but remain independent.
Benefits of horizontal integration to both the companies and society may include economies of scale and economies of scope. For the company, horizontal integration may provide a strengthened presence in the reference market. It may also allow the horizontally integrated company to engage in monopoly pricing, which is disadvantageous to society as a whole and which may cause regulators to ban or constrain horizontal