Horizontal integration is the process of a

company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...

increasing production of goods or services at the same part of the

supply chain In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...

. A company may do this via internal expansion, acquisition or merger. The process can lead to

monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...

if a company captures the vast majority of the market for that product or service. Horizontal integration contrasts with

vertical integration In microeconomics, management and international political economy, vertical integration is a term that describes the arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the suppl ...

, where companies integrate multiple stages of production of a small number of production units.

Horizontal alliance

Horizontal integration is related to horizontal alliance (also known as horizontal cooperation). However, in the case of a horizontal alliance, the partnering companies set up a contract, but remain independent. For example, Raue & Wieland (2015) describe the example of legally independent logistics service providers who cooperate. Such an alliance relates to

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, ind ...

Aspects

Benefits of horizontal integration to both the firm and society may include

economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...

and

economies of scope Economies of scope are "efficiencies formed by variety, not volume" (the latter concept is "economies of scale"). In economics, "economies" is synonymous with cost savings and "scope" is synonymous with broadening production/services through div ...

. For the firm, horizontal integration may provide a strengthened presence in the reference market. It may also allow the horizontally integrated firm to engage in

monopoly pricing A monopoly price is set by a monopoly.Roger LeRoy Miller, ''Intermediate Microeconomics Theory Issues Applications, Third Edition'', New York: McGraw-Hill, Inc, 1982.Tirole, Jean, "The Theory of Industrial Organization", Cambridge, Massachusetts: T ...

, which is disadvantageous to society as a whole and which may cause regulators to ban or constrain horizontal integration.

Media terms

Media critics, such as Robert W. McChesney, have noted that the current trend within the entertainment industry has been toward the increased

concentration of media ownership Concentration of media ownership (also known as media consolidation or media convergence) is a process whereby progressively fewer individuals or organizations control increasing shares of the mass media. Contemporary research demonstrates in ...

into the hands of a smaller number of transmedia and transnational conglomerates.Thorburn, David and Jenkins, Henry (eds.)(2003). ''Rethinking Media Change: The Aesthetics of Transition''. Cambridge, Mass.: MIT Press. p. 283. Media is seen to amass in center where wealthy individuals have the ability to purchase such ventures (e.g.,

Rupert Murdoch Keith Rupert Murdoch ( ; born 11 March 1931) is an Australian-born American business magnate. Through his company News Corp, he is the owner of hundreds of local, national, and international publishing outlets around the world, including ...

). That emerged are new strategies for content development and distribution designed to increase the "synergy" between the different divisions of the same company. Studios seek content that can move fluidly across media channels.

Examples

An example of horizontal integration in the food industry was the

Heinz The H. J. Heinz Company is an American food processing company headquartered at One PPG Place in Pittsburgh, Pennsylvania Pittsburgh ( ) is a city in the Commonwealth (U.S. state), Commonwealth of Pennsylvania, United States, and the co ...

and

Kraft Foods The second incarnation of Kraft Foods is an American food manufacturing and processing conglomerate, split from Kraft Foods Inc. in 2012 and headquartered in Chicago, Illinois. It became part of Kraft Heinz in 2015. A merger with Heinz, arran ...

merger. On 25 March 2015, Heinz and Kraft merged into one company, the deal valued at $46 billion. Both produce processed food for the consumer market. On 9 December 2013,

Sysco Sysco Corporation (short for Systems and Services Company) is an American multinational corporation involved in marketing and distributing food products, smallwares, kitchen equipment and tabletop items to restaurants, healthcare and education ...

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 would have been horizontal integration, as both distribute food to restaurants, healthcare, and educational facilities. On 16 November 2015,

Marriott International Marriott International, Inc. is an American multinational company that operates, franchises, and licenses lodging including hotel, residential, and timeshare properties. It is headquartered in Bethesda, Maryland. The company was founded by ...

announced that it would acquire Starwood for $13.6 billion, creating the world's largest hotel chain. The merger was finalized on 23 September 2016. The AB-Inbev acquisition of SAB Miller for $107 Billion, which completed in 2016, is one of the biggest deals of all time. On 1 November 2017,

Centurylink Lumen Technologies, Inc. (formerly CenturyLink) is an American telecommunications company headquartered in Monroe, Louisiana, that offers communications, network services, security, cloud solutions, voice, and managed services. The company is ...

bought

Level 3 Communications Level 3 Communications was an American multinational telecommunications and Internet service provider company headquartered in Broomfield, Colorado. It ultimately became a part of CenturyLink (now Lumen Technologies), where Level 3 President ...

for $34 billion, and incorporated Level 3 as part of Centurylink. On 14 December 2017,

The Walt Disney Company The Walt Disney Company, commonly known as Disney (), is an American multinational mass media and entertainment conglomerate headquartered at the Walt Disney Studios complex in Burbank, California. Disney was originally founded on Octobe ...

announced a $52.4 billion bid in stock to

acquire ''Acquire'' is a multi-player mergers and acquisitions themed board game. It is played with tiles representing hotels that are arranged on the board, play money and stock certificates. The object of the game is to earn the most money by developi ...

21st Century Fox Twenty-First Century Fox, Inc., doing business as 21st Century Fox (21CF), was an American multinational mass media corporation that was based in Midtown Manhattan, New York City. It was one of the two companies formed on June 28, 2013, fo ...

along with its bulk of assets, which included the famed

20th Century Fox 20th Century Studios, Inc. (previously known as 20th Century Fox) is an American film production company headquartered at the Fox Studio Lot in the Century City area of Los Angeles. As of 2019, it serves as a film production arm of Walt Disn ...

film studio A film studio (also known as movie studio or simply studio) is a major entertainment company or motion picture company that has its own privately owned studio facility or facilities that are used to make films, which is handled by the productio ...

and other assets such as FX Networks and 30% stake in

Hulu Hulu () is an American subscription streaming service majority-owned by The Walt Disney Company, with Comcast's NBCUniversal holding a minority stake. It was launched on October 29, 2007 and it offers a library of films and television series ...

. Both companies produced and distributed films and television series, as well as each owning a 30% stake in Hulu.

References

{{reflist, refs= {{cite web, title=Horizontal Integration Definition, url=http://www.economicshelp.org/blog/glossary/horizontal-integration/, publisher=economicshelp.org, access-date=5 February 2016 {{cite web, title=Definition of Horizontal Integration in a Supply Chain, url=http://smallbusiness.chron.com/definition-horizontal-integration-supply-chain-34736.html, publisher=smallbusiness.chron.com, access-date=5 February 2016 {{cite web, title=horizontal integration, url=http://www.businessdictionary.com/definition/horizontal-integration.html, publisher=businessdictionary.com, access-date=5 February 2016 {{cite news, title=Sysco Ends Plans to Merge With US Foods, newspaper=Wall Street Journal, date=July 2015, url=https://www.wsj.com/articles/sysco-walks-away-from-us-foods-merger-1435580019, publisher=WSJ, access-date=5 February 2016, last1=Gasparro, first1=Annie Market structure Business terms Strategic management Marketing strategy

Horizontal alliance

Aspects

Media terms

Examples

See also

References