Many companies are vertically integrated, meaning that they own and control all production steps, from input to output.
The opposite of vertical integration is horizontal integration (or outsourcing). Companies do this when they only control one or two steps in the supply chain.
In the early 1900s, many industries were not organized horizontally. This lack of integration led to inefficient practices and high prices for consumers.
This article will explain “how did horizontal integration limit competition” in an oligopoly system. Let’s check it out!
Horizontal integration occurs when more businesses form an organization. As a result, they manufacture comparable items or offer similar services.
It is a proper method that big businesses use to gain an edge over smaller competitors.
When small businesses are “horizontally integrated”, they can also compete with large companies. But, of course, it can also happen through acquisitions or internal growth.
The holding firm can gain its goals by employing this strategy:
- Increase the size of the firm
- Utilize scale economies to your advantage
- Gain access to new markets
- Reduce competition
The number of enterprises in a market is proportional to the degree of competition. Thus, as competition decreases, so does active business and vice versa!
In our research, the answer to “How did horizontal integration limit competition?” resides within the definition of horizontal integration.
Fewer independent businesses exist when two companies are at the same value chain level. Thus having fewer competitors in an industry leads to higher profits for consumers. The economy starts growing!
On the other hand, how did horizontal integration limit competition in decreasing it, and what was the true motive behind that? The following explanation depends on three models in Porter’s Five Forces. Overall, competing pressures shape every industry.
Porter’s model shows that almost every company uses horizontal integration. This reduces the threat from their current rivals as well as newcomers and alternatives.
But, the fall frequently coincides with limited competition and even monopoly. Naturally, the governments strongly oppose this.
As a result, if the approach works and competition decreases, buyers may face many problems caused by the increased cost.
Another option to address the question “How did horizontal integration limit competition?” is to enhance synergies for the combined company, reducing competition among multiple businesses.
When applying strategy successfully, the firm will be able to enjoy its vast scale. Thus, production scales up and reduces costs per unit. That results in more profit at the next stage of production.
As well, two different companies’ products or marketplaces can create synergy. That can increase the cross-selling potential and broaden each company’s market.
Many companies have failed as a result of the COVID-19 outbreak. But, horizontal integration synergies allow many enterprises to survive. These synergies also enable them to grow in their marketplaces.
This approach helps you to make headway in this competitive world. It also creates a sound effect for all businesses in the same sector.
Generally, all the benefits listed above are critical for answering the question, “How did horizontal integration limit competition?”
To better understand “How did horizontal integration limit competition?” we will look at a few examples below.
Procter & Gamble’s 2005 acquisition of Gillette is an instance of a horizontal merger. This merger combined both companies’ expertise to reduce costs. With hygiene-related items, they can cut down on marketing efforts.
The merging of two major oil firms, Mobil and Exxon, in 1998 was the largest corporate merger in history. The merger brought together the country’s leading and second-largest energy companies.
Officially, Exxon paid $75.3 billion for Mobil. The purchase gave Exxon access to Mobile’s petrol outlets and product reserves. ExxonMobil is now the world’s biggest oil company, thanks to a combination of factors.
The Daily Records said that Exxon was the 3rd-largest producer in 2019. But Oil&GasIQ is a website for people who work in the oil and gas industry. They say that Exxon was the 4th-largest producer in 2018.
The Walt Disney Company’s 2017 acquisition of 21st Century Fox is another well-known integration. They have access to many assets, including FX Networks, the film studio 20th Century Fox, and a 30 percent share in Hulu. As a result, the film industry’s competitiveness suffers.
We hope you gain an understanding of “how did horizontal integration limit competition”. So, consider these benefits the next time you plan to expand your business. It limits competition and can increase efficiency and create new growth opportunities.