A number of industries have seen horizontal mergers among competing firms in recent years. This has been common in the banking industry, practiced by such firms as Bank of America and MBNA. In years past, General Motors expanded through the horizontal merger of individual car companies (Chevrolet, Buick, Cadillac, Oldsmobile, and Pontiac). The petroleum industry has recently produced firms such as Exxon Mobile, ChevronTexaco, and ConocoPhillips formed by horizontal mergers.

Horizontal mergers are among those most closely watched by the Department of Justice as it seeks to enforce antitrust laws and promote efficient competition. Because market efficiency depends on the market control of each firm, which depends on the number of competitors, concern arises if that number declines. Fewer competitors mean each firm has more market control and the overall industry tends to be less efficient. Whenever two competitors undertake a horizontal merger, competition is likely to decline.

The hypothetical Shady Valley soft drink market offers one example of a horizontal merger. The two largest competitors in this market are OmniCola and Juice-Up. A horizontal merger results if these two companies merge to form a single company (call it OmniUp). Such a merger concerns antitrust enforcers because OmniCola, with 23 percent of the market, and Juice-Up, with 17.5 percent of the market, gives the new OmniUp firm over 40 percent of the market. The next largest competitor is Super Soda, with a relatively small 11.25 percent of the market. This merger raises the four-firm concentration ratio from 61.25 to 67.50 and the Herfindahl Index from 1177 to 1982.