What is a potential risk of horizontal integration?

A potential risk of horizontal integration is the decreased market competitiveness. When a company acquires or merges with competitors in the same industry, it may lead to a concentration of market power that can reduce competition. This reduction in competition can open the door to monopolistic behaviors, where the merged entity can set higher prices or provide lower quality due to the lack of competitive pressures. Additionally, decreased market competitiveness may attract regulatory scrutiny, as antitrust laws are designed to prevent such concentration to protect consumers and ensure a healthy marketplace.

In contrast, increased product differentiation, a wider customer base, and lower production costs are generally seen as benefits of horizontal integration. These advantages arise as the company can leverage greater resources, share research and development, and unite brand strengths, which streamline operations and broaden market appeal. However, the challenge lies in ensuring that the integration does not stifle competitive dynamics in the market.