Horizontal Integration

AAA

DEFINITION of 'Horizontal Integration'

The acquisition of additional business activities that are at the same level of the value chain in similar or different industries. This can be achieved by internal or external expansion. Because the different firms are involved in the same stage of production, horizontal integration allows them to share resources at that level. If the products offered by the companies are the same or similar, it is a merger of competitors. If all of the producers of a particular good or service in a given market were to merge, it would result in the creation of a monopoly. Also called lateral integration.

INVESTOPEDIA EXPLAINS 'Horizontal Integration'

Examples of horizontal integration include an oil company's acquisition of additional oil refineries, or an automobile manufacturer's acquisition of a light truck manufacturer. Horizontal integration offers several advantages, including favorable economies of scale, economies or scope, increased market power and reduction in the costs associated with international trade by operating in foreign markets. Horizontal integration is in contrast to vertical integration, where firms expand into different activities, known as upstream or downstream activities.

 

VIDEO

Loading the player...
RELATED TERMS
  1. Midstream

    Term used to describe one of the three major stages of oil and ...
  2. Vertical Integration

    When a company expands its business into areas that are at different ...
  3. Backward Integration

    A form of vertical integration that involves the purchase of ...
  4. Upstream

    Operations stages in the oil and gas industry that involve exploration ...
  5. Acquisition Indigestion

    A slang term describing an acquisition or merger in which the ...
  6. Monopoly

    A situation in which a single company or group owns all or nearly ...
RELATED FAQS
  1. How does horizontal integration allow companies to share resources?

    In a horizontal integration, a company either acquires another company or merges with that company. This allows the resulting ... Read Full Answer >>
  2. Why should management teams focus more on horizontal integration?

    Management teams should focus more on horizontal integrations because they allow for economies of scale, economies of scope, ... Read Full Answer >>
  3. What business structures expose entrepreneurs to unlimited liability?

    A company that seeks to expand through a horizontal integration can achieve economies of scale, economies of scope, increased ... Read Full Answer >>
  4. How are direct costs allocated differently than indirect costs?

    One of the clearest examples of horizontal integration is Facebook's acquisition of Instagram in 2012 for a reported $1 billion. ... Read Full Answer >>
  5. How do I calculate the Macaulay duration of a zero-coupon bond in Excel?

    A horizontal integration consists of companies that acquire a similar company in the same industry, while a vertical integration ... Read Full Answer >>
  6. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Horizontal Integration

    Horizontal integration is the acquisition or internal creation of related businesses to a company’s current business focus.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Options & Futures

    A Guide To Investing In Consumer Staples

    These companies may not be flashy but they offer investors structure and diversification.
  4. Investing Basics

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  5. Investing

    Use Breakup Value To Find Undervalued Companies

    Find out a company's worth if it were sold in pieces - it may be more than you think.
  6. Investing News

    The Financial Singularity Will Destroy Your Return

    Given the current and future growth of financial technology, many believe algorithms will soon define what drives market outcomes. With a wealth of big data, algorithms would be able to create ...
  7. Economics

    What Does Inferior Good Mean?

    The term “inferior good” does not describe a lack of quality, but rather, is an economic term used when discussing elasticity of demand for a good.
  8. Economics

    What Is a Giffen Good?

    A Giffen good is a product whose demand increases as its price increases, and falls when its price falls.
  9. Economics

    What Does Going Concern Mean?

    Going concern is a concept used in business and accounting to describe the fiscal health of a company.
  10. Investing Basics

    Explaining Counterparty Risk

    Counterparty risk is the risk that the other party in an agreement will default, or fail to live up to its contractual obligation.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!