Did Antitrust Policy Cause The Great Merger Wave? PDF
Preview Did Antitrust Policy Cause The Great Merger Wave?
EA, EG & L WORKING PAPERS DID ANTITRUST POLICY CAUSE THE GREAT MERGER WAVE? GeorgeB ittlingmayer WORKING PAPER NO. 115 September1 984 FfCB uroeEfac uo nowmiocsr kpianpargere sp relimmaitnecaririryac ltousst l iamtueddl iastceau nsadsii otnci ocmamlAle lnd ta ctaon taiintnedh ema rietn h e pubdloimcaT ihnii.ns c liundfeso rombattabiiyton hnCede o mmiwhssiichho anbs ec opmaeor fptu brleciocrT dha.en alayncsesdo nclsetu fsioorantrtsheh ose otfh aeu tahnoddron s on teces asrrielflytec hvtei eowsof th erm emboerstf h Beu roeEfac uo nomics, otshteoarrff,t hCCeoo mismmsimiosnis tiseoUlnpf o.n request,s incgolpoeift es hp ea pweibrlep l r ovRiefdeedr.eni cpnesu blitcFToaC tB iuornoesEfa c uo nowmiocrskp ianpbgeryFT s C ec onom{ioststht ehra n acknowlbedyagw emreitnthteha reht a asc ctesoss u ucnhp ubmlaitsehsredhi oabulecls ld)e wairttedhh ae u tthopo rro tthectete ntcahtiavroeatf ch teesepr a pers. BUREAOUFE CONOMICS FEDERALT RADCEO MMISSION WASHINGTDOC2N 0,5 80 r DIDAN ITT RUPSOLTI CCYA USTEH EG RETA MERGEWRA EV?* by Geoer Bgitt iln gmayer Wasnhgit oUnn vier si yt *Ac onvaetrisno wit hL estTeersl e rl de mteo w rtie t hi sp apera,n dh is commenthsav ep roevdt ob e gar eaati d.I thankF ranEka tse rbroionkh is roel ase di otre speaclil yb,ut a l soe BYroazeln ,M eyeBru resint ,A lf reCdh adnle r, Noaln C lar k, M ich aeKln oll,N aomLia mourxe, a Will aim L ansde,J ohMna trin , Frdeeric kM il lre,E dwda Srndyer B,ar ryW enig asatnd ana nonymuosr eferfeore useuflc ommentasn ds uggesito n.s MYe xperssoin so fg raitt udseho ul d bneo t tak en toi mpyl,h oewve,r t hattho sew hoh aev heple dm en eecsasr ilaygr eew it h mym ethoodrsc onucsloi n .s Kevin Sullvi a np rodveide xperrets earch asssita nce. Thi swo rkw ass upptoerdi np artt horuhg thes ummerg ranptr goraomf t he Gradu aet SchooolfB usnie sAsd mniis traito no ft heU nvier stiy o fM ic hgian . I. ITNRODCUTINO Perphsaa sm uch oanse a-lfh ofU .S.ma nufacitgnu crap aciyt toopka ritn mergedrusirn gt he year1s8 89 t1o09 2.T hesem ergefrrseu qenyt il cnlu demdo ts oft hef irm s ina ni dnutsrya ndo fteinvn ovle df irm s thath adb eefnix in g prcie so rt hahta db eeonpe raetdj oin tyl t horuhg thel ega lm echasm noif a n idnutsrail uts.rt Theh is tori oefsS tandaOridl a ndU .SS.te elp roived well knowni sntnaceisn w hcih m ergeforll o weld oosre formso fo rgaznaiito n. What casuedt hsi priadc haen ogfi dnutsr ys trucutre?T he ShermaAnnt it ruts A ctw as passde in1 890,a ndt hef ir stc ruaclid ecsiio n s mak ign pri fcixe i nigl elg a-l-. Tra-nMssios ur(i1 879)J,o nit T raffic (8198 ), andA ddytso n( 1989) --ocrcrued 1 justb efoorred uirn gt hef ir sts tagoefst hem ergwearv .e Mergeorf ' comeptnig f inn s reamin edu nclhealn geudn itl 1 904. Alt huohg itc etrainl ys eemsp la usbile thaanttt iru st poilyc cauds tehe GreaMte rgeWr av,e t heq useti o nh as nevebre elnoo kedi tno altne gth, ands ome infl u enatli udsitse oft hem ergearnsdo fe alrya ntit rusptoi lyc pladyow nt he possbiil i yt ofa connteioc n.T hi si sp uzzilgn becuaset hes ear(cid:34)cf or alt ernvaetsih asn otb ornef ruit. Oner easone consomtsi m ayb ei cnli endt o dism istsh ei fnlu encoef c artpeolil yc ,a ndw hyt hep ossiil btiy h asn evebre en presse,d c omesf romt hep reumsptio nt haftirm s wouldc hoosem ergoerve rp rcie fixin gi ft hecyo uld becuase mergera voisd hao sto fp roembsl thacta rtse l faceW.h ys huold moonpoly- mnid efdi rm s hav eto bef orcteodm ergaet t he poin to fa bayoneTth?ea nsewr, ofc or suei,s t hatf irm s wil lp refceartr esl tom ergeirft heg anis a re greateIrf. therdei s eaocrnoem eis f romm ergearnd ift he avail bale moonpolyg ai sn aren otl rage, thep rfeerrde chioec mayv ery well b ec arteilaz tino,m ak ign ita tl aestc oncveabi le thatth ei tnrdouciot no f .al wa agaisntp rcie f ix in gs wungt heb aaln cie nf avoorf me rger. -2 - Thisa rgumenats sumetsh att hem otivef orb othc artelasn dme rgersi s monopolgya in. Howevert,h ei deat hatt hem otivem ayn otb e monopolayt all alsos eemsw orthe xplroing,e specialsliyn cem anyf irmss eemedt o prefert he vagarieosf a cartela greementto them ores ecurceo ordinatioofn a merged existenceF.o re xamplec,a rtelasn dm ergermsa yb e cooperatiavtet empttso solvem arketp roblemtsh atd o noth avea noncooperatsiovleu tionO.n ef ocus of sucha n explanatioann,d t heo net hatI wille mphasizies, the integoerr fixedc ostp roblem.T hisi s a well-knoiwnns tancien whicht herei s no competitievqeu ilibriuAms. alwayst,h ec hoiceb etweetnw ot heoriessh ould be governebdy theira bilittyo explaitnh ef acts,a ndI hopet o showt hata n explanatiboans edo n thed esiret o remedtyh ep roblempso sedb y fixedc osts hasa t leasta s muchg oingf ori t in thec aseo f theG reatM ergerW avea s an explanatiboans edo n thed esirefo rm onopoly. I should emphatshiaztet heset woe xplanatioanlso,n eo r togetherd,o not providae generatlh eoroyf mergert;h erea rec ertainlrye asonost hert hana desirefo rm onopolgya ino r a desiret o remedmy arketf ailurset emminfgr om fixedc ostsw hyf irmsm ightm erge.M y primarayi mi s to seew hethear reasonabtlhee oreticfaolu ndaticoann b e constructfeodr t hev iewt hatc hanges in antitruspto liccya usetd hel argey ear-to-yevaarr iatioinns merger activittyh att ookp lacei n thel ate1 9tha nde arly2 0thc enturieasn dt hat convertemda nyc arteltso single-fiorrmg anizatioTnh.i sp aperi s nota n attemptto explaihno rizontmaelr gerisn generla, andI do notr uleo utt he possibilitthya ts omethinlgi keU .S.S teel wouhladv eb eenf ormede ventually eveni f thea ntitruslta wsh adn everb eenp assed. Thiss tudyi s organiazse dfo llows:S ectioInI reviewtsw oe xplanations forc artelasn dm erger asnudm mazreist heiri mplicatiofnosr t heo rganization of an industryS.e ctioInI Ic overds evelopmenitns t urn-of-the-century - 3- antit ruts p oilyc ,a ndS etcio nI Vp resentdsa at otnh eU .Sa.n dU K.. me rger. s SecotniV looks tawtop ronmein itdn usrtie st hapta rict ip ateidn t he1 889-1092 mergerw av,e n aemly railro aidgn andi orna nds ete,l a ndr eview s evdie ncfer om sevrealo theirdn usrtie sw herteh ersee emtsoh aev beean l nik b etween anttiru sta ndm eregr. SecotniV Ic onids e rtsh eo bjteioc nst hahta vbee en raside agian stt hee xsiet ncoef s ucha lnik, andS ecotniV IlIo oksa tt he possiibliy t ofa ncnoce toin b etweaenntt iru sta ndm ergeforr t hep eroid1 905- 1950. Ita l csonot anisa statsiit cailvn etsig atoinf ort hey ears1 8951-290o f ther ealt oin b etwemeenger r, anttiru stp oilyc ands tock cper.si II.M ONPOOLY,C OLLIUNOS A NDI DNUSTROYRG ANI AZTINO Thef amliai r e xpla naotnif orc artse aln da ntcio mepttiiv em ergebresgn is, atl aesti mpilic lty,wi t ht hea naylss i ocfom pettivi e m arektsa ndem phaszie s theg an sif rocmo mtpiet io n. Compteiti no betwefeirmn s brnig sp rcies dowtno marngail c os,t a ndt hee ntrayn de xito ff irm s laedst op rcie st hacto vre the costso ft he magrin alf irm int hel nogr u.n Its' u sefutlo r eacll twoo f the keya sumsptio nsi nt hsi a naylss i: a vergae c osst oft hef irm decreatsoa e cetrain ponit a ndt hein cnraesea,n dt hen umboefrf irm s is" laer. g"I ft he firm s ina ni dnusrtyc an gettog etheanrd f orm ac arteolr m ereg themya yb e abl teo r etsr cit o utptu a ndr ai psrecie s att hee xpeen osf tchoenu sm e.r Thea naylss i ocfa tresl h asf oucsedo n tcheo sst andb enetfsio f coll suion , ofteans a sub-topci i nt hee comnico so fi fnormatio n. Ult im atye,l ofc ouer,sa ni cnreasien p rcie w il ll aedt on ew entr,y b uts hotr ofp rvoo kin g newe ntyr,t heg ai sn accuring t om onpooyl- mnide dp rodruscae rel miit edb yt he diffic ult yo fa greein go na div is ion o ft hep rotfsia ndo fd etecntgic heantgi 2 and enfoirgnc collsu ion . Inp arctuial r, thef ewetrh en umboefrs ellre si n ani dnusrty, thee aise ri ti sf ort hemt oc ollu de.I ts houldb en ot,eh do ewve,r - 4- thatth eriesa ceritnat enisno oircn oniss t ecnyb etwetehnea sspumtoin o f lrage numbesr off irm s int he modeolf c ompeitt io nu seads a becnhmar,ka nd ther euslt thacto llsu ion i sm orle kie lwyh etnh en umboerff irm s issm all. Varoiu so thre cftaors lnik edw it ht he diffic ul toyr e asoef c ollu soin h ave 3 als ob eemne notnie ,d b ut then umboerff irm s appeaornse veyr lsit . Itm ig hts eemf romt hissk techo fm odse olf c ollsu io nt hatt he firm s in ani dnutsr yb enotn ge ttin gm oonpolgyai nw il lp reefrm egre rt op rcie f ix in g becaucsaret esl o ftebnre akd owann db ecuas et he cotss aofgr eenigo na div is io n opfr opsetciv em oonpolgyai sn ariecn urreodn yl o nc,e w hil ec aretl • enofrcemte cnotss arree ucari rn ge xpseen.T hsi i sa natruals upptoios ni,a nd atetmpttso e xpali nth et uronf--thec-etnurym ergersi nm ancya rtieezld idnutsreis h aev foucs eodn d evoepmle nttsh amta diete aseirt oc reaatned operaltraege rmfsi- c-haensgi nc orpoartino lwa,i pmrovemenitncs o mmnuiactoin andt rapnostraito n,a ndt he growotfho rgiaz nede xchnagse--in setado f cnhgeas 4 tharta sie dt hec osts ofc artieazlti no. Howevre,t heem phsais onf actors thatf aciilt atetdh ef ormaiot no fl rage rmfis mays tlil b ew rongi ft he dis ecomnisoe oro thecros ts assoactiew dit hm egerr ares uffeinctyil l rage and ift he propescitv em oonpoly ganis a resm all . Fore xamep,ls uppotshea at m onpooils tcia lly i cnli endi dnutsry faces ienla stidcem anudp t oa ceratinp rcie a ndi fnin it eyl e la sitcf orgenio r potteian lc omtpiet io na bovteh aptr cie. Als oa sseum thatth eraer es ome, 5 peraph so nlys lig htd,is ecnoomeis f rmo megrer.T hsi i sa smipel m od:e tlh e protf mia xmiiz in gp rcie f orb oth ctarh tee aln d tmhegeerd firmw il lb ej ust belo wt he impotr prcie e veinf t hem ergfeidrm •cso tss a reh igh e.r But cosnide rt hei pmli actoin .s Ift hec arteblr eadkosw 5n0 p ercenotf t het ime , thei dnusrtyw il lr emain ac arteolnl yi ft hei cnrementcaolss t ofm erge(rep r tiem perio d) a rem orteh aonn eh-afl t hec urerntm oonpolyg ai n. Thsi i pmli se - 5 eit hre sbusatntia l sdeicn omoies osfca le ofra ril eyff ecvteip oteanlt i compteit io n.F ora giv enc ospte ntaylf romme grer,t hei cnrementgaalni f rom caretli aztoin o vemre rgeircn reasaesst hed uralbtiiy o f tchaer tieclnr esaes anda st he catre'ls c urrenmta grin deceras.e sF ors ome combnia ito no fl wo enoumgohon polrye turannsdh igh - enougchos tp entaiel s f romm erger, cartse l 6 wil lb ep refreer.d Ins hort,e rteih sn othnig i nhereln tsyu spcii os uabouta world inw hihc firm s prefcearr tse tlo meragesra w ayo fe xtrtainc gm onoolyp rentasn di nw hi hc the enforcemoefna t l wa again stp ric ef ix inlgae ds those firmst om erge. Sof a,r hIa vaes seumdt hatth ea imof c aretls amnedg re ri sm oonpoly protf,ib utt herei sa nohtere xpla ntaio nt hate msswe ortphu sruin gf ort wo reasso n.F irs t,i ta voisd thei cnosnis tencbye twetehnea sspumtoin o fl rage numbesr ocfom pettoisr int he theoroyf c ompettioi n a ndt he restu tlha t col uls in oism aneaagbel o nyl w it hs mall n umbeorfsc ompettoir.s I no tehr worsd,t he posbsiiil yt ofc ompteiti no isn ol nogetro baes seumd but dedudc.e Secnod, itp rodveist estabel i pmli actoin sa boutth ec irc umstancse undewrhi c hc ollsu oi n w il lt akpela ce andt hef ormst hatc ollu soin a sseums, andt hesei pmli actoin sd if feri ns omer especfrtostm ho seo ffereidn t hem ore famiilra theoyr. Thes tratehgye ries t om aknee csesarya ndr esaoanbel a sumsp toin sa bout thet ecohlon gy andd emanodf a marekt,a nd etnth ryt oi fnerw hawtil lh ap pen undear r egmieo fc omtpiet io na ndi dnependeanctto in .T hi sl aedsv erqyu ikcly toa well k nowni mpasisnoe l i ogpolya ndg amteh eor,y b ut siertve st o illu stratteh atth ep rolemb s actaull yf acebdy f irmsma yb em orceo mipaclt ed thant hem odeolf c ompettioi n i mpilse .I coudl p reste tnechcnailr euslt so n thisp oitn,b ut thef ir s ttim- er eaedrw il lp roabbly get moourteo fa n exampel. T hep roposesdo ulti o nt ot he impasissae c opoeravteei q uiilb r iu m, -6 anda lt houIg whi l ln ots pefcyi tahlle aotcoin o fr eutrnisn t hta equlibi r umi , I wil lp roposteha tc etraienc omnico isntit uito ns--rctaesl,m ergfeidrm s, tacit colulso in ( iift e xsits )a,n dg overnmreeunglt oant-ia- ymc ontsit utseu ch cooperiva eto utcomes. Suppotsher emeu tlu astrangearrseh ai lign cabast a steretc orenr, and allth reew antto g ett ot he air po.r tE acihs w illni g t op ay$ 7. Two (nureugla te)d c ab s, eacahs seumdt o vheac apa ctiy ftowro p as sengres, shouwp att hes maet im.e E achc abibei sw illni g t od rvie ttohe air portf or$ 6w ith eit heorn eo rtw o pass energs. Them agrin alc osto fc aryrin gt hes econd pasnsgeeri sz ero, thet hreep assengse arrej oin tlyw il lnigt op ay$ 21 ,a nd thec osto ft woc abiss $ 12.Th eo ptim al ustooiln c alls f or bcoatbhts o ,g o imply in ga nets oicalg ani o f$ 9. Onew ayt oe xpolr et hsi s i ttiou nai st os etu pa comepttiiv ea lg orit hm--a set of lreust haetm byo tdhe notoino fc ompettiio na ndi dnepenednta cito n--and thetnr acteh ec on sqeunecse. Thep urposeo ft hsi a lg orit h,m i ts ohudl b e stresds,ei sn ott oo ffera predcit oin o fw hawtil lh ap peinn s uch situ ttaio n,s b utt oi lulsr tatteh atth reei sn oc ompieittev allo catoin o f retusr tnoc ab bie sa ndp ropse cit vpea snsgeesr.A sumse thatc ab beis opporse far,e s psaesn gecrasna ccpeto rr eejc tt hosep roopslas ,a ndt haptr poosal asr e notb ind nig u ntialll arec onnvcie tdh anto a lt ertniva ep rpooasl o fferas superoiro uctome.I fo nec abbie prpooessa faroef $ 5. 00t he othewro udl f idn itf nh is itneerstt oo ffe,r s a,y $ 4. 05.T hsi c ompettioi n w ou ld conint ue until theo fferresa che$d3. 00,a ndo nec ab bei odrpped ou.t Thew in neir n thibsid dnig c ontecsotud l t hne rasie h ispr icet ot he protf miax iimznig $ 7. 00 whihc woudl a ll ocate seatsa montgh ec usomters.B utt hsi w oudl p ull t hel soer baciktn ot he marekt, reutrnnigu s ttohe beg in nnig . - 7- Anotehrw ayo fi ll umiantnig t hed iff icu tly f orc omeptit io n, whcih a vodis whamta yb et he countern-tuii it vneo toino fs emein gleyn dels sr ecornatcint g, ist of ocuso nt her etusr anvaibllae top assengerasn dc abb.i Tehseo btsa cel toa compeitt i ovuet comei st hawth ie l th"eeb s"t suotilo nf romt he ponit o f viewo fa nyt wop assnegersa nd oncea bibep rodvesi t heh ig hets a verea rgetnusr avaialbl e ,a ll bcbaei s a nda ll passengesr cannootbt ani t heser etnusr. For examep,lt hem axmiu mr eutr na vaibllae tot het hreep assengeriss $ 9, o r$ 3 eac.h E quarleu trsn tot he pasnsgeersc oudl c ome abouti fa ll three pass engebrarsga inco lle ctiv eyl, b ut anyt woa lw ayhs avaen i cnenvteit ob and· togehter andh ire a ni ldec ab,a ssuirn gt hemsvele sa sm ucahs $ 4s urpuls e ach. Thed if fictuypl o seidnt hsi e xamep sloh wsu pu ndear w id er aneg ofc ost andd emadn codnit io ns andh asb eeinn t he ltie raturfeo ra tl aestf itfy yea.r7 s Jacbo Vine rw as1e db y" pesuod-dynamcis "s iimlar ttoh osient he baragin in gr ounddse srcib eda bovet oc ocnlu det hta pric esi na ni dnustyr w it h a U-shapaevde rea gscotc urevsw oulods icll tae. Otherre uslt sa rea ls o concveabile .T heC ournoNtah-s equiilrbi umc alsl f ore accha beb tio o ffetrhe · numboefrs eattsh aptr odveis t hem ots p rotf,ia ctnigu ndetrh ea sspumtoin thatth eo thedrr vie rd oenso tr eactt ot he fir std rvie 'rs a citnos. Each drvie rw oudl o ffeorn es ea.t ( fI passengersw erdeiv is ib le ,e acwho udl o ffer 1.94 sea.ts)A lt houghi sts hemesp ossib l e ,i t's h arld iyen vtia bel. Intseaodf l ooknig f ora . onn-ocop eriaevt ocro pmettiiv ee quiilrb ium , it mayb eu sefutlo t hnik o ft hsi s iutatio na so nei nw hcih a coopeivr ea t soulti o nc anb ee mpolye d.T heraer es everalp ossbili itse .I nt he examep l her,e t he passnegesr coudl p resenta untie df rotn tot he twoc abbeis a nds pli t thes urlup sb etwetehne. m A sa na lte rntaive ,t hec abebsic oudl a greet o .chrage $7p erp asnsgeera nds plit the resltu in gp roif otf $ 9b etwetehenm. The cabcso udl a ls om erge. Yeta ntoherp ossiibily t calls f ort hec it y -8 govemrenntto i sseu raet reugla toin ,s s tip ula tign fa aroef, sa,y $ 6 per pasnsgeer. Thisw ou ld notd etermnie a unqiu ea llo caiot n,b uti fa na rbtir ayr crtier io n( ac ab' sd is tanfcreom t hec ur)b i su sde tos etet wlhi hc cab taeks twop asnsgeerasn dw hi hc ktae so n,e i tw ou dl prevetnhteb aragin in gi pmasse andr euslt ina na ll coatio nt hait sa sg ooads a nyo th.e rI ns imi alr e xamepsl invovlin gl ragerc apa ctii se andm orper ospiev ecp tasseng,e prrsci e r egula tio n ande ss entaill yr andaomss ign mnetsw oudl r euslt inr ouhgly equanlum berosf pas snegersi ne accha b. Thes trutcureo ft hep roemb li ns'tr ic he nuoght od etrmein ew hat isntitiunotala rrangemte wnil lem erg,e b uti ti sc le art hatth et rancstianos 9 costisvn olv edi nv ar io usa lt erntaiv es wil lh avea maojr i fnlu en.c e The turnovoefrp asnsgeesr mayb eh igh ,r uli gn out collsu oin a monpgas snege.r sO n theo thehra n,d sam all a nds talb peo pautloi n o fc a dbr vier sc ould all ow successf uslel f -reagtuio ln o rm eregr.I fj oi natc ito nb yp asnsgeesr or cabebsif aield ,o ri ft her euslt in gp rcie sw erie ne xcesosf c ost,s g ovemrennt mig hts etpi n. Ofc ou rs,e vgeornmemnitg ht itnefreraen ywa,y a ndt heries n o guanrtaeteh ta itnefrerenocnel geit im atger ousn wdo udl b eb etttehrna the evialmi eda t. wShoi ,l teh ep rbolem genetreadb yf ix edc osts canb et hought ofa sc reiagnt a" antrualmo nopyo,l "i nt hes enes t haitdn ependaecnttoi na nd thep rcie s ytsem don otl aedt ot heo pitmla rest u,il t i sn otc le art hatth e iedals oult oin c alls f ore it heorn ef inm org ovemrenntr egautli no. Thisd is csusio nc anb ei tnerpreitnetd e rmso ft het heoyr of tfhirme . Whent hep roembsl ofe cnoo imco ragnzia toin c annbeo th anled db yt hep ric e system,t her esnpsoei so ftetnh ee staisb hmle notf aonrg ainz aito nt hat subist tutecso mmanfdo ri dnependeanncdte h eu seo fp rcie .s Thsi i sw hat typiaclloyc ucrs wit hni i dniv iuda lp la ntso rp rdoucitno untis ,al t houtghhe dif fciu tly o fu snig t hep rcie s ystiemno ragnziin gp rodtuioc n o ftelnae ds
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