What is the Horizontal Business Combination?
“The horizontal business combination protects the small firms from reckless market competition in which such firms otherwise cannot exist. These firms are benefited maximum in case of industry where demand for the product is inelastic and financial set-up is over capitalized. ”
The horizontal business combination takes place when the unit carrying on identical business activities combines firms or units at the same stage of production or at the same level of activity in trade or commerce.The rationale behind such combinations is the need to do away with fierce competition. Such a combination is always in the interest of all the businessmen that are involved in a single line of activity.
The Sugar Syndicate, Associated Cement Companies are horizontal business combinations in many developing countries. Bringing together the firms operating in the same type of business forms the horizontal business combinations. The important feature of this business is that in it the firm makes an agreement to follow some common policies or to come under common management.
The main object of the firm for forming such combinations is to reduce business combination in the market or to solve common problems jointly or to achieve the economies of large-scale production.
The horizontal business combination protects the small firms from reckless market competition in which such firms otherwise cannot exist. These firms are benefited maximum in case of industry where demand for the product is inelastic and financial set-up is over capitalized.
With the use of horizontal business combination wasteful inter-firm competition is eliminated. Larger control over the market by combinations means better price and more benefits.
The economies of large-scale business are realized since the constituent firms after combining operate certain business activities under common and coordinated management such as purchase, marketing, research, transport, banking services etc.
The firm can obtain the equilibrium or balance in demand and supply in the market by estimating demand and controlling production. Standardization of the products is also achieved in this way. Even more, such a method also leads to certain negative effects for the consumers.
Many a time, this results in a monopoly in a particular product. The astonishing fact is that the average consumer may not have even an inkling of such a scenario. The result is that he pays through his nose and still does not complain about it.
Author - DeeKay
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