If two large movie-theater chains decide to merge, the result is likely a horizontal integration that creates a more favorable industry structure by decreasing competition.

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In contrast to vertical integration, which concerns the number of activities a firm participates in up and down the industry value chain (as discussed in Chapter 8), horizontal integration is the process of merging with a competitor at the same stage of the industry value chain. Horizontal integration is a type of corporate strategy that can improve a firm's strategic position in a single industry. Competitors in the same industry frequently merge to change the underlying industry structure in their favor. Horizontal integration changes the underlying industry structure in favor of the surviving firms. Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants. As a whole, the industry structure becomes more consolidated and potentially more profitable.

If Two Large Movie-Theater Chains Decide to Merge, the Result