A horizontal merger is when two companies competing in the same market merge or join together. This type of merger can either have a very large effect or little to no effect on the market. When two extremely small companies combine, or horizontally merge, the results of the merger are less noticeable. These smaller horizontal mergers are very common. If a small local drug store were to horizontally merge with another local drugstore, the effect of this merger on the drugstore market would be minimal. In a large horizontal merger, however, the resulting ripple effects can be felt throughout the market sector and sometimes throughout the whole economy.

Large horizontal mergers are often perceived as anticompetitive. If one company holding twenty percent of the market share combines with another company also holding twenty percent of the market share, their combined share holding will then increase to forty percent. This large horizontal merger has now given the new company an unfair market advantage over its competitors.

Guidelines

All companies are subject to Federal laws that prohibit certain actions from taking place during a horizontal merger. When a horizontal merger takes place, the loss of a competitor in the market creates benefits for the companies that merged, while at the same time serves to drive prices up for the consumer. Federal laws protect the consumer by prohibiting companies from creating a monopoly.

Mergers Blockages

Staples, Inc., a superstore retailer of office supplies, wanted to acquire Office Depot, another giant retailer of office supplies. This action would have left the newly merged Staples in the position as the only large office supply superstore in most places around the country. This creates an unfair advantage for Staples in the market. Market research showed that Staples would have then been able to increase their prices up to 13 percent after the merger. The Federal Trade Commission recognized the results this action would have on the market and took steps to block the merger, saving billions of dollars for customers.

Merger Waves

Merger waves began in 1883 following the depression ending that year. The merger wave came about due to the economic expansion occurring at the time. The mergers were mostly all horizontal mergers within the manufacturing industry. The 1904 decision of the Supreme Court in the Northern Securities case in March of 1904 is credited by many with likely ending the merger wave. This decision paved the way for the antitrust laws which now regulate mergers.