A horizontal merger is when two companies in the same industry merge to increase market share and combine strengths. It can benefit consumers but also reduce choices. Sometimes it is done to eliminate competition and gain control of patents.
A horizontal merger is a business merger in which the two companies are involved in the production of the same types of goods and services. Often such a merger is carried out as part of a strategy to command more of the available consumer market share by combining the strengths of each company into a central entity. Sometimes such a merger will also take place as a means to minimize the number of competitive companies within a given industry.
When done as a means to capture a larger market share, a horizontal merger is likely to include two businesses that have similar values in terms of quality, customer service, and overall operating philosophy. Often each company involved in the merger will possess identifiable strengths that the other lacks to some degree. For example, one company may have up-to-date production facilities that are capable of producing a greater number of finished goods per day, while the other company has a transportation and delivery network that is the best in the industry. By structuring the newly unified company to take advantage of those strengths, the business is likely to generate profits beyond those of the two pre-merger entities and capture greater market share than either could have managed on its own. alone.
There are situations in which a horizontal merger occurs not as a means to build a stronger unified company, but as a means to eliminate competition. For example, a larger company may choose to merge with a startup that has recently garnered a lot of attention and a decent amount of market share. The merger allows the larger companies to gain control of the patents related to the smaller entity’s products, operate it as a subsidiary if they wish, and thus prevent the new company from becoming a major competitor. Although technically more of an acquisition, it’s not unusual for this type of strategy to be identified as a horizontal merger, if for no other reason than to generate positive public relations.
A horizontal merger can provide benefits for consumers, as well as increase the potential of some liabilities. On the one hand, the merger could lead to the production of higher quality goods and services, allowing consumers to receive more satisfaction from their purchases. At the same time, horizontal merger could create a situation where consumers have fewer choices when selecting goods and services, forcing consumers to settle for less than what they really want.
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