Horizontal integration

In microeconomics and strategic management, horizontal integration is a corporate-level strategy used by companies, through which they decide to focus on operating in a single industry and acquire their competitors or merge with them.

Among the benefits it brings to a company are: cost reduction, less rivalry within the industry, improved product differentiation, and the company's best position to negotiate with its suppliers, as well like all those typical of economies of scale. Another aspect that improves efficiency is the acquisition of intangible assets from your competition (such as patents).

Contrasts with vertical integration.

A monopoly created through horizontal integration is called a horizontal monopoly.

An example

GAP Inc., a textile products corporation, is a good example of a business that practices horizontal integration. GAP inc. controls three separate companies, Banana Republic, Old Navy, and the GAP brand itself. Each company owns stores that sell clothing designed to meet the needs of different groups. Banana Republic sells higher-priced clothing with a high-end image, GAP stores sell moderately-priced clothing that targets men and women of all ages, and Old Navy sells cheap clothing geared especially toward children and youth, not excluding the rest of ages. Using these three companies, GAP Inc. has been very successful in controlling a large segment of retail in the apparel industry.

In the late 1990s the financial sector experienced significant horizontal integration, with many mergers between companies in client banks, investment banks and insurance companies.