A:

A company that seeks to expand through a horizontal integration can achieve economies of scale, economies of scope, increased market power or market share, reduction of production costs, reduction of competition and increases in other synergies. However, a company that decides to integrate horizontally must face disadvantages that include antitrust issues and legalities, the fact that the expected economic gains might never be realized, the reduction in flexibility and the potential of actually destroying value rather than creating it.

Horizontal integration occurs when a company decides to merge, acquire or take over another company in the same industry and at the same stage of production. Disney's acquisition of Pixar or the merger of Exxon and Mobil are both great examples of horizontal integration. In both examples, two companies of similar size and operation, operating in the same industry, combined to form a stronger company.

When a company can achieve the advantages of a horizontal integration, the company can diversify its products or services, sell those products or services to a larger market, reduce the costs to produce its newly diversified products or services, and reduce the amount of external competition.

When horizontal integration hampers a company, the worst disadvantage the company can face is a reduction in overall value to the firm because the expected synergies never materialize, despite the costs of the horizontal integration. Other disadvantages can include legal repercussions if the horizontal merger results in a company that may be considered a monopoly and a reduction in flexibility due to the fact that it is now a larger organization.

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