What Is a Horizontally Consolidated Business?

by Alexis Prescott, Demand Media
Use mergers and acquisitions to gain competitive advantage in a single industry.


BananaStock/BananaStock/Getty Images

Competition among businesses in the the same industry fosters innovation and increases market efficiencies in an economy. Many businesses wanting to gain a competitive advantage in a single industry use horizontal consolidation to achieve their goals. Consolidation of small companies in growing industries through mergers and acquisitions enables firms to take advantage of pooled resources and gain financial leverage. This created synergy leads to collective savings that are passed on to consumers in the form of lower prices.


Horizontal consolidation or horizontal integration are terms used to describe the process of merging the same type of business or product line at the same stage of production in a single industry. For example, a steel manufacturer that merges with another steel manufacturer is considered a horizontally integrated business.


Horizontal consolidation is a growth strategy used by companies in the same industry. The merging of same-type and same-stage businesses creates greater opportunities for productivity and growth after the merger takes place. For example, a bank with many loyal customers that merges with a bank offering superior electronic services is able to retain and expand its client base while limiting competition from smaller banks.


A method of corporate expansion that differs from horizontal integration is called vertical integration. Vertical integration is the process by a single company of acquiring several product lines in different stages of production to increase its potential in the marketplace. For example, an oil company that owns crude oil deposits and then acquires drilling rights, extraction processes, refining plants, transportation services and retail outlets achieves market power through a common owner and brand.


National economic risks associated with horizontal consolidation are the creation of monopolies and oligopolies. Monopolies exist when no competitors remain in an industry, and oligopolies exist when few competitors remain in an industry. Horizontal mergers that are seen as anti-competitive by the Federal Trade Commission can be blocked by federal antitrust laws. These laws are in place to ensure fair competition among businesses and protect consumers from anti-competitive practices such as collusion between businesses in an attempt to control the market and raise the market price. One example of this is called horizontal price fixing, whereby an agreement by producers is made to fix product prices above market price.

About the Author

Alexis Prescott has worked in the financial sector for more than 10 years writing internal reports for two major financial institutions. She holds a B.A. in economics and a Master of Business Administration with finance concentration.

Photo Credits

  • BananaStock/BananaStock/Getty Images
Suggest an Article Correction

Have Feedback?
