The Celler-Kefauver Act strengthened powers granted by the Clayton Act to prevent mergers that could possibly result in reduced competition. There are numerous benefits to undergoing horizontal integration. When two companies come together, they also bring different consumer bases. The merger was officially completed, including the consolidation of the different Loyalty programs into 1, by during the second half of 2018. Horizontal Integration is the type of merger that takes place between two companies operating in the same industry. And if a merger threatens competitors, it could attract the attention of the Federal Trade Commission. These companies are usually competitors and merge to gain higher market power and economies of scale. These advantages of Horizontal Integration can lead to the growth of partnerships in R&D, production, offering of products and services and more. It may arise from expansion to new market segments, economies of scale, economies of scopeEconomies of ScopeEconomies of scope is an economic concept that refers to the decrease in the total cost of production when a range of products are produced together rather than separately. These cookies will be stored in your browser only with your consent. However, with the entry of Reliance Jio, all the telecom companies took a significant hit. "Our History." On 14 December 2017, The Walt Disney Company announced a $52.4 billion bid in stock to acquire 21st Century Fox along with its bulk of assets, which included the famed 20th Century Fox film studio and other assets such as FX Networks and 30% stake in Hulu. By using Investopedia, you accept our, Investopedia requires writers to use primary sources to support their work. Let us look at a few numbers: With the combined resources, the merged entity was able to service a larger customer base with relatively lower assets. Backward integration is a type of vertical integration that includes the purchase of, or merger with, suppliers. CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™CBCA™ CertificationThe Certified Banking & Credit Analyst (CBCA)™ accreditation is a global standard for credit analysts that covers finance, accounting, credit analysis, cash flow analysis, covenant modeling, loan repayments, and more. Here are a few other advantages of horizontal integration: Horizontal integration should not be confused with lateral integration, which is the merger of two companies that sell related goods but do not compete with each other. A horizontal merger is a merger or business consolidation that occurs between firms that operate in the same industry, usually as larger companies attempt to create more efficient economies of scale. However, with the entry of Reliance Jio, all the telecom companies took a significant hit. The overall gain from a horizontal integration is an increase in the market power and minimal loss for being non-integrated. A competitive advantage is an attribute that enables a company to outperform its competitors. [10] It would have been horizontal integration, as both distribute food to restaurants, healthcare, and educational facilities. [6] Media is seen to amass in center where wealthy individuals have the ability to purchase such ventures (e.g., Rupert Murdoch). The first and most troublesome is the level of scrutiny this kind of strategy faces, especially from government agencies. A retail business that sells clothes may decide to also offer accessories, or might merge with a similar business in another country to gain a foothold there and avoid having to build a distribution network from scratch. Or there may be economies of scope, which make the simultaneous manufacturing of different products more cost-effective than manufacturing them on their own. Horizontal integration can involve mergers and acquisitions or it may refer to a company that has grown via internal expansion. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. ”Facebook to Acquire Instagram.” Accessed Sept. 8, 2020. certification program, designed to help anyone become a world-class financial analyst. Big mergers like these are the reason why antitrust laws are in place. The Certified Banking & Credit Analyst (CBCA)™ accreditation is a global standard for credit analysts that covers finance, accounting, credit analysis, cash flow analysis, covenant modeling, loan repayments, and more. Post-merger, the resulting firm was producing 10% of the world’s total steel. It is mandatory to procure user consent prior to running these cookies on your website. However, in the case of a horizontal alliance, the partnering companies set up a contract, but remain independent. They were both a part of Seven Sisters, a name given to a group of 7 oil and petroleum industry companies that dominated the industry from the 1940s-1970s. Jio launched offers that were too attractive for the customers to avoid and gradually started to shift from other companies to Jio. Such horizontal mergers or acquisitions reduce competition from new potential rivals or from already established rivals that wish to acquire the company. The company also purchased the Intercontinental hotels later on. If horizontal mergers within the same industry concentrate market share among a small number of companies, it creates an oligopoly. These companies are usually competitors and merge to gain higher market power and economies of scale. On 1 November 2017, Centurylink bought Level 3 Communications for $34 billion, and incorporated Level 3 as part of Centurylink. To better understand the differentiation of these two business strategies, read below the practical example of two organizations that make transformation decisions for the company. On 9 December 2013, Sysco agreed to acquire US Foods but on 24 June 2015, the federal judge ruled against the deal saying that such merger would control 75% of the U.S. foodservice industry and that will stifle competition. It creates the idea that the larger, newly formed corporation may take advantage of consumers with higher prices and narrow product/service choices.