Horizontal Combination is a strategic business practice involving the merger or acquisition of companies operating within the same industry. This practice is commonly employed to enhance market power, reduce competition, and achieve economies of scale, which can lead to increased profitability and market share. For detailed understanding, refer to [Horizontal Merger].
What is a Horizontal Combination?
Definition and Context
A Horizontal Combination, also known as a Horizontal Merger, occurs when two or more companies that produce similar products or services at the same stage of production combine operations. Unlike vertical mergers, which integrate companies along the supply chain, horizontal combinations focus on consolidating firms within the same market.
Objectives and Benefits
- Market Power: By merging, firms can increase their market share and exert greater control over market prices.
- Economies of Scale: Combining resources and operations often leads to reduced per-unit costs and improved efficiency.
- Reduced Competition: The merger decreases the number of competitors in the market, which can lead to a more favorable competitive environment.
- Enhanced Market Reach: Companies can expand their geographical reach and customer base more effectively.
Types of Horizontal Combinations
Pure Horizontal Combination
This involves the combination of companies that are direct competitors, offering substantially the same products or services.
Complementary Horizontal Combination
This includes companies that, while in the same industry, offer products that complement each other, thereby offering a more comprehensive range of services or goods.
Historical Context and Examples
Historical Development
Horizontal combinations have a long history, dating back to industrial revolutions where large corporations sought to dominate their respective markets.
Notable Examples
- Exxon-Mobil Merger: In 1999, Exxon Corporation completed a merger with Mobil Corporation to become ExxonMobil, significantly enhancing its market power in the oil industry.
- Sirius-XM Merger: In 2008, satellite radio companies Sirius and XM merged to form SiriusXM, consolidating their market presence.
Special Considerations
Regulatory Scrutiny
Horizontal combinations often attract significant scrutiny from regulatory bodies, such as the Federal Trade Commission (FTC) in the United States, to ensure they do not create monopolies or anti-competitive environments.
Integration Challenges
Merging companies must address various integration challenges, including cultural differences, redundancies, and operational complexities, to realize the expected benefits.
Related Terms
- Horizontal Merger: Another term for horizontal combination, emphasizing the merger aspect.
- Vertical Merger: A merger involving companies at different stages of production within the same industry.
- Market Concentration: A measure of the extent of control a firm or group of firms has over a market.
FAQs
What is the main difference between horizontal and vertical combinations?
What are the risks associated with horizontal combinations?
Summary
Horizontal Combination, or Horizontal Merger, is a strategic approach where companies in the same market merge to increase market power, reduce competition, and achieve economies of scale. While offering substantial benefits, it also comes with regulatory and integration challenges. Understanding this concept is crucial for comprehending the dynamics of corporate strategy and market structure.
