Discuss the possible benefits from horizontal integration of firms in a market where profit margins are falling

Horizontal integration is where a firm acquires or merges with another firm within the same industry and at the same stage of production. When a firm merges with another at the same stage of production, managerial economies of scale may be realised. This arises from the firm being in a better position to employ specialist managers which can then lead to increased productivity, thus reducing long-run average costs and therefore increasing the firm's profit margin. On the other hand, the firm may experience diseconomies of scale. This is where economies of scale cease to exist, and the law of diminishing returns comes in to play. The firm now sees an increase in its marginal cost. Bringing in new management can cause a conflict in ideologies which can lead to a slowdown in processes as managers are debating methodologies. As a result, long-run average costs may actually increase, which further reduces the firm's profit margin.
Horizontal integration can also boost sales resulting from an increase in the brand's recognition. Brand recognition would increase because the firms merge both their customer bases together, thus exposing the brand name to a wider audience. The increase in the brand's popularity would result in an increase in the consumer's trust in the brand and so sales increase, causing revenue to also increase. However, there are a number of costs associated with integration. During a merger, some form of restructuring must take place which will likely lead to a number of redundancies, which the firm will have to pay for. In some scenarios where one firm is taking over the brand of another firm, the dominant firm would have to pay the cost of re-branding all of the other firms branches. This can lead to a loss in the short term while an increase in profits is experienced in the long-term.