Horizontal integration

Question 1

What is Horizontal integration?

Answer 1

It is integration between two businesses in the same industry at the same stage of production

Question 2

Give two recent examples of horizontal integration

Answer 2

FedEX bought TNT in 2016 for 3.4 bn
.Betfair and Paddypower merged together

Question 3

Give two advantages of a horizontal integration

Answer 3

.Exploit internal economies of scale including bulk buying, technical economies and financial economies
.Cost savings from the rationalisation of the business-often involves job losses however
.Potential to secure revenue synergies by creating a wider range of products
.Reduces competition by removing key rivals-increase market share and long-run pricing power
.Buying a well known brand can be cheaper in the long run than organically growing it

Question 4

Give three disadvantages of horizontal integration

Answer 4

.Risk of dis-economies of scale from the enlarged business
.Reduces flexibility-addition of more personnel and processes means the need for transparency
.Destroying shareholder value rather than adding to it because promises never materialise
.Risk of investigation from the competition authorities