Horizontal integration in the economy

The unification of the economies of many countries is the leading sign of the modern world. This is a process that happens objectively, and at the same time it is guided consciously. There is a tendency for rapprochement, splicing, adaptation to each other of the economic systems of several nations.

Integration in the economy in the modern world proceeds as if on two levels. On the one hand, economic life becomes more international. On the other hand, there is a convergence of the economies of several countries at the regional level. On this basis, it is possible to determine the forms of international integration corresponding to these processes:

• Global, generated by the ongoing processes of globalization;
• Regional, traditional. In some countries, it began to develop in the second half of the 20th century.

In addition, it is customary to distinguish between integration taking place at the level of enterprises and at the state level.

In the first case, this is a private-corporate type. It combines the assets and capital of several organizations.

Integration of the institutional type is the interpenetration of national reproduction processes, their coalescence. In this case, the political and social institutions of those states that come together are converging. Often this type of integration is the result of decisions taken by country leaders. Its forms depend on how freely the factors of production can move within the groups. This is a free trade zone, currency, customs and economic unions, as well as a single market.

Private-corporate integration can also be of two types:

• Vertical;
• Horizontal.

The first unites companies that are involved in different areas, but they are linked together by successive stages of circulation or production.

Horizontal integration unites organizations that operate in one area, in one market. In this way they seek to defeat serious competitors.

Horizontal integration, which unites several corporations in one huge, entails several consequences that are important for the welfare of the whole country.

1. Growth of the power of large firms in the market. At the same time, the number of independent manufacturing enterprises is getting smaller. A small number of traders allows you to influence the level of prices for goods. This market can be called quasi-competitive, as the increased concentration of sellers still does not protect against possible rivals. This barrier is very low. Therefore, as if the combined sellers did not want to raise prices, they can not do it. After the first significant increase, the market will be flooded by competitors.

2. There are synergistic effects. Horizontal integration allows firms to reduce some of the costs. This occurs as a result of synergistic effects. They are expressed by an increase in the results of firms that have merged into one, in comparison with the results achieved by firms disparate. These effects relate to investment, finance and operations.

3. Occurrence of transaction costs. They take place in the case of partial integration, when property in the form of alliances or treaties is not fully combined. Observing one's interests, one of the partners does not trust the other completely.

4. Weakening the power of consumers and suppliers in the market. When the concentration of those who offer goods is too high, firms involved in one industry are forced to exert influence on them so that they do not raise the prices of the resources used. Horizontal integration can help in solving this issue. To reduce prices and produce more volume of products, the supplier enterprises should be enlarged. Thus, their high concentration will be equal to the concentration of consumers in the market, which, in turn, stabilizes prices.