Horizontal Mergers

Horizontal integration is where a firm mergers with a company in the same/similar industry and same stage of production. Reasons include:

  • Increase market share
  • Improve/gain economies of scale
  • Acquire patents and products
  • Increase barriers to entry or exit
  • Consolidate monopoly or oligopoly power

There are various economies of scale that can be gained by merging horizontally, which include:

  • Purchasing economies of scale – The new merged company will need a lot more supplies, and can order in bulk which reduces the cost per unit
  • Technological economies of scale – Access to technology and patents from both firms, and also can invest in larger, more efficient, or more specialised technology
  • Financial economies of scale –  Larger companies can borrow more, and may also be seen as more trustworthy, meaning they can borrow for less as well
  • Marketing economies of scale – Can spend more on advertising, and access higher quality advertising, and if both firms are established brands, then the brand value increases and advertising becomes more effective

Horizontal mergers are some of the most common types of acquisitions, and there have been many examples, such as:

  • Acquisition of Instagram by Facebook (now Meta) in 2012 for $1 billion (Media)
  • Walt Disney Company’s $7.4 billion acquisition of Pixar Animation Studios in 2006 (Media)
  • 1998 acquisition of Mobil for $75.3 billion by Exxon, forming the company known today as ExxonMobil (Energy)

However, horizontal mergers are also one of the most regulated types of acquisition, as the CMA and its equivalent authorities in other countries want to prevent firms in the same industry getting too big and abusing their monopoly power. There have been various cases where a regulatory body has intervened in a horizontal merger, including the following:

  • Attempted acquisition of T-Mobile by AT&T (Telecommunications)
  • Attempted acquisition of Time Warner Cable by Comcast (Media)
  • Attempted merger between General Electric and Honeywell (Technology)

As you can see from the failed examples above and also the successful examples mentioned earlier, many mergers and acquisitions, both attempted and successful, occur in the tech and media industries, and so these tend to also be the more regulated sectors.

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