A merger can be defined as combing of two companies into one. One type of merger is Horizontal Merger which can be defined as a merger which involves two companies which are operating as well as competing in the same business. So for example when two telecoms companies decide to merge or two big FM CG companies decide to combine it will be case of horizontal merger. In other words it is a merger between 2 companies of same industry.
1. The main advantage of horizontal merger is that it reduces the number of companies which are in the industry and increases the power of current companies which are in the industry to take advantage of less competition and hence earn monopoly profits.
2. It also gives the companies which are merging the advantage of economies of scale by elimination of duplication of machinery and services and hence they can invest that amount at some other which can give higher return.
3. Companies have to spend lesser amount on advertisement and other promotional activities due to this kind of merger and hence it increases the margins for the company.
However in some countries these types of merger is not allowed because it creates a sort of monopoly and give economic concentration to few companies which is not acceptable because they can charge whatever they want and ultimately it is the consumer which suffers the most.