Horizontal integration

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Horizontal integration represents a corporate strategy where a firm seeks to merge with or acquire another business within the same industry to expand its market share. This approach allows companies to attain economies of scale[1], bolster their market influence, and fortify their competitive stance. Nonetheless, this strategy comes with its own set of complexities, including potential regulatory obstacles and possible cultural discord[2] among the merging companies. The integration could also provoke industry dynamics, fostering a more aggressive market. A prominent instance of this is the Kraft and Heinz merger. Horizontal integration is a subset of the broader merger and acquisition strategy, which also encompasses vertical and conglomerate mergers.

Terms definitions
1. economies of scale. Economies of scale refers to the enhanced production efficiency achieved as the volume of goods produced escalates. Commonly, by attaining economies of scale, a business can reduce the average cost per unit due to amplified production, as fixed costs are distributed over a larger quantity of goods. Elements that contribute to economies of scale encompass purchasing (procuring materials in bulk via long-term agreements), managerial (heightened specialization of managers), financial (securing lower-interest rates when borrowing from banks and access to a broader spectrum of financial tools), marketing (distributing the expense of advertising across a broader output range), and technological (leveraging the inverse correlation between the capital cost of machinery and its size). It's crucial to highlight that economies of scale can also be experienced externally, for instance, through the expansion of a specific industry within a certain geographical region.
2. discord. Initially developed by Jason Citron and Stanislav Vishnevskiy for gamers, Discord is a versatile communication platform. Since its inception in 2015, it provides a plethora of features such as instant messaging, voice and video calls, text messaging, and the ability to share media. Discord users can interact in private conversations or on servers that include chat rooms and voice channels. Compatible with various operating systems and web browsers, Discord has experienced consistent growth, boasting 150 million active users monthly by 2024. Beyond gaming, Discord has evolved into a wide-ranging chat client for various subjects. The platform has received funding from organizations like YouWeb's 9+ incubator, Benchmark Capital, and Tencent. Additionally, Discord has formed partnerships with WarnerMedia for investment and Microsoft to cater to Xbox Live users.

Horizontal integration is the process of a company increasing production of goods or services at the same level of the value chain, in the same industry. A company may do this via internal expansion, acquisition or merger.

A diagram illustrating horizontal integration and contrasting it with vertical integration

The process can lead to monopoly if a company captures the vast majority of the market for that product or service.Other benefits include, increasing economies of scale, expanding an existing market or improving product differentiation.

Horizontal integration contrasts with vertical integration, where companies integrate multiple stages of production of a small number of production units.

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