A horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry.
This type of merger occurs frequently because of larger companies attempting to create more efficient economies of scale. The amalgamation of Daimler-Benz and Chrysler is a popular example of a horizontal merger.
Conversely, a vertical merger takes place when firms from different parts of the supply chain consolidate in order to make the production process more efficient or cost effective.