A:

Management teams should focus more on horizontal integrations because they allow for economies of scale, economies of scope, increased market power over suppliers and downstream members, and the reduction in international trading costs due to the potential accumulation of foreign factories. Unlike a vertical integration, a horizontal integration is the act of acquiring or merging with a similar company in a similar industry.

A good real-world example of the reasoning behind why a management team should focus more on horizontal integrations is Facebook's acquisition of Instagram in April 2012. Both Facebook and Instagram operated in a similar social media and photo sharing industry, and both had achieved similar levels of success in terms of growth and numbers of users. Facebook saw the purchase of Instagram as a chance to achieve economies of scale and increase market share and market power. Through this horizontal integration, Facebook essentially became the dominant company in terms of photo sharing at the time of acquisition.

Another good example of a horizontal integration is Exxon's acquisition of Mobil. Through this acquisition, Exxon was able to benefit from Mobil's gas stations and other distribution channels, increasing its own economies of scale, economies of scope and market share.

While there are many benefits of a horizontal integration, antitrust issues may arise. If a government regulation deems the integration to create a monopoly, the acquiring company or the resulting company from the merger can face heavy penalties or regulations. In addition, there is the possibility that the perceived benefits won't materialize.

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