Horizontal combination | Meaning | Advantages | Disadvantages

Horizontal business combination

What is horizontal combination?

It refers to combination of businesses engaged in the production of the same type of product or engaged in the same trade.

Horizontal business combination - Meaning, Advantages, Disadvantages

Image: Horizontal business combination – Meaning, Advantages, Disadvantages

For e.g. Cement companies joining together (acquisition of Gujarat Ambuja Cement by Lafarge of France) or steel manufacturers joining together (Tata Iron and Steel Co., acquiring Natsteel of Singapore) etc. It is also known as parallel or unit or trade combination.

Why are horizontal combination formed?

The following are some of the basic reason for horizontal combination in business:

Horizontal combination are formed to:

1. To reduce competition.

2. To avoid cut-throat competition.

3. To reap the benefits of economies of scale.

4. To restrict output.

5. To fix prices etc.

Advantages of Horizontal combination in business

The following are the advantages of horizontal combinations:

1. Avoidance of wasteful competition.

2. It ensures better control over markets.

3. It helps realize economies of scale.

4. It aids standardization of products.

Disadvantages of horizontal combination in business

The following are the disadvantages of horizontal combinations:

1. It may lead to monopoly situations.

2. It may result in restriction of output, increase in prices and exploitation of consumers.

3. When the business grows beyond a particular size, control becomes difficult.

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