When two or more units engaged in the same kind of business join or combine under single management, the combination is called Horizontal Combination. The quality of such combined units is that they carry on the same trade before the combination. Such kind of combination is undertaken mostly when too much competition is existent in the market. In India, such combinations are found in the cement industry. Hit by cut-throat competition, two companies The Indian Cement Manufacturing Association and the Associate Cement Company Limited which were established in 1926 and 1930 respectively, combined afterward to form a single company with the name of ACC, now it is known as one of the leading cement companies not only in India but also in the world.
- To end unfair mutual competition.
- To earn profits from large scale production.
- To avail the services of experts.
- To establish monopoly on the market of commodity.
- To minimise the expenses of production, distribution, sale, advertisement etc. of the business unit.
Merits of Horizontal Combination
Advantages of Large Scale Production
By combination of two or more units, the scale of production becomes large, which yields profits by a decrease in costs.
Elimination of Unnecessary Competition
Through combination of similar business units, the unnecessary cut-throat competition between them ends automatically.
Advantages of Monopolistic Control
After combination business units can establish the conditions of monopoly in the market and then sell their products at any price they want.
Balance between Demand and Supply
When units combine, they produce only that quantity of output which is required in the market. Hence, they face no problems in maintaining the correct balance between demand and supply of their product.
Opportunity for Research Work
Small units working separately cannot afford the expenses of research work but when these units, carrying out the same business unite together, research expenses are distributed and profits are earned in equal proportions.
Profits from the Services of Experts
Small units cannot afford to avail the services of technical experts, whereas, after combination a big business unit can even call technical experts from abroad.
Combination of two or more units not only increases their economic strength but the government also provides many advantages to big productive units.
Demerits of Horizontal Combination
Misuse of Monopoly Power
Most of the horizontally e combined units develop monopolistic powers, which results in the exploitation of consumers and the society.
Hindrance in Growth
Such combined units, do not make much effort to increase their efficiency and productivity after combination, growth between them ends. Thus, they do not promote industrial development of the country.
Danger to Small and New Producers
Such combinations pose great danger to the existence of small and new producers in the market, which adversely affects the economy of the country.