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Horizontal integration

From Academic Kids

In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets. To get this market coverage, several small subsidiary companies are created. Each markets the product to a different market segment or to a different geographical area. This is sometimes referred to as the horizontal integration of marketing. The horizontal integration of production is where a firm has plants in several locations producing similar products. Horizontal integration in marketing is much more common than horizontal integration in production. It is contrasted with vertical integration.

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

An example

The GAP Inc. retail clothing corporation is a good example of a business that practices horizontal integration. GAP Inc. controls three distinct companies, Banana Republic, Old Navy, and the GAP brand itself. Each company has stores that market clothes tailored to appeal the needs of a different group. Banana Republic sells more expensive clothes with a more "upscale" image, the GAP sells moderately priced clothes that appeal to middle-aged men and women, and Old Navy sells inexpensive clothes geared towards children and teenagers. By using these three different companies, GAP Inc. has been very successful at controlling a large segment of the retail clothing industry.

In the late nineties the finance industry experienced much horizontal integration, with numerous mergers between companies in the retail banking, investment and insurance industries.

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