A horizontal merger is a type of corporate consolidation that occurs when two companies that provide the same products or services combine. Such mergers aim to enhance company value by offering a larger and more diverse product portfolio to the marketplace, reducing overhead costs, and eliminating competition.

Since horizontal mergers involve companies operating in the same sector, they are tightly scrutinized by regulatory agencies, which have the power to block or allow the merger. This is to ensure that the deal does not create monopolies or substantially reduce competition in the market.

One common example of a horizontal merger occurred in 2009 when pharmaceutical giant Pfizer merged with rival Wyeth in a $68 billion deal. The merger gave Pfizer access to Wyeth’s wide portfolio of products, including those used to treat Alzheimer’s disease, HIV, and inflammatory diseases.

Horizontal mergers may significantly increase a company’s market share and give it the ability to set higher prices for its services, due to lowered competition and higher demand for the combined products. This can be beneficial, as long as the companies involved have complementary synergies, products and resources.

However, such merger-driven monopolies with reduced competition can also have negative implications. As the number of large, controlling companies increases, the options and prices available to consumers are reduced, leading to a decrease in market competition. Additionally, the companies that merge are able to exercise significant economic power and control of the market, giving them the ability to determine production and distribution levels in the market.

Overall, horizontal mergers can be a positive for the companies involved by increasing their revenues and not having to compete against each other. However, it is important to remember the potential negative effects to the consumer and the potential market monopolies that can be created. Companies involved in a horizontal merger should carefully consider all the potential implications and discuss the situation with regulatory agencies to make sure that the merger is beneficial to the public.