What Is a Horizontal Merger ?

A horizontal merger is a merger between competing firms offering similar products or services to the same market. Such a merger results in a larger firm with more market share and power and reduces competition in the market.

Depending on how similar the business operations of the merging companies are, a horizontal merger can present an opportunity to cut costs by combining certain operations, such as manufacturing. According to The Economist, a good example of a horizontal merger is the Hewlett-Packard and Compaq merger of 2002. The U.S. government, through the Antitrust Division of the Department of Justice, carefully scrutinizes proposed horizontal mergers and challenges competitively harmful mergers that have the potential to substantially reduce competition or create a monopoly.