A horizontal merger is a merger or business consolidation that occurs between firms that operate in the same industry. Competition tends to be higher among companies operating in the same space, meaning synergies and potential gains in market share are much greater for merging firms. This type of merger occurs frequently because of larger companies attempting to create more efficient economies of scale. Conversely, a vertical merger takes place when firms from different parts of the supply chain consolidate to make the production process more efficient or cost-effective.