What risk may a business face when pursuing a horizontal integration strategy?

A horizontal integration strategy involves a company acquiring or merging with another company in the same industry at the same stage of production. While this approach can offer various benefits such as increased market share and reduced competition, it also carries significant risks, particularly related to regulatory compliance.

When a business pursues horizontal integration, it may unintentionally breach competition laws, such as those enforced by the European Union. These laws are designed to maintain fair competition in the market and prevent monopolies or oligopolies from forming. If a merger or acquisition is deemed to reduce competition unduly, it could lead to extensive legal challenges, fines, or the requirement to divest parts of the newly formed entity to restore competitive balance. This risk is particularly acute in industries where market share is already concentrated, as regulators analyze these transactions critically.

In contrast, options such as increased customer loyalty, higher production costs due to decreased resources, or improved access to multiple markets do not inherently reflect the core challenges associated with horizontal integration. While these factors can be influenced by various business strategies, they do not capture the significant legal and regulatory risks that can arise from such a consolidation approach.