Economics Letters 25 (1987) 1733176 North-Holland 173 zyxwvutsrqp IN SEARCH OF INDUSTRY EFFECTS OF LARGE CONGLOMERATE MERGERS Robert M. FEINBERG * Penns~luama State Uniuersity, University Park, PA 16802, USA US International Trade Commission, Washington, DC 20436, USA Most studies of the effects of conglomerate mergers have evaluated their impacts on the companies involved. This note examines the industry effects of 14 large conglomerate mergers which occcurred in the mid-1970s. focusing on markets in which a significant share was acquired in the merger. Data on the companies involved and on the market shares acquired were obtained from the FTC’s Line of Business Program. Census of Manufactures data (for 1972 and 1982) on concentration and price-cost margins were used to evaluate industry effects of these mergers. The results suggest that large conglomerate mergers pose little risk of anticompetitive harm. whatever their distributional impacts between acquired and acquiring firm stockholders, 1. Introduction There has been much interest in the past 20 years on the part of economists (and others) in examining the effects of conglomerate mergers. ’ The bulk of the resulting research has focused on company effects - How is company profitability or growth affected? Do stockholders of acquiring or acquired companies gain the bulk of any rewards from these mergers? Does management gain at the expense of owners? These questions are important in their own right as well as in extending the theory of the firm to explain merger behavior. However, from a public policy/antitrust perspective, another question seems paramount: How are the industries involved in conglomerate mergers affected? In the absence of any observable industry effects, it can be argued that only redistribution is involved in conglomerate mergers, with no clear impact on social welfare. In an earlier paper [Feinberg (1984)], I examined the industry impacts of 11 ‘large firm/leading firm’ conglomerate mergers which occurred in the 1960s. Comparing Census of Manufactures data before and after the mergers, no evidence emerged of any significant change in the structure of acquired markets as measured by four-firm seller concentration ratios. This result was consistent with that obtained by Goldberg (1978), who examined 211 markets entered through merger between 1954 and 1963; however, his finding of no significant effect on seller concentration is weakened by the inclusion of relatively small acquisitions and the fact that in only 17% of the industries considered was the acquired firm an industry leader. While Goldberg stopped with the analysis of industry structure, my earlier paper found, in addition, no change on average in performance, measured by Census price-cost margins (after adjusting for movements in the all-industrials price-cost margin). There was, however, some evidence that where entry barriers were high and seller * Conclusions presented herein are those of the author and have not been adopted by the U.S. International Trade Commission, the Federal Trade Commission. or any other entity within either Commission. The FTC’s Disclosure Avoidance Officer has certified that the data included in this paper do not identify individual company LB data. ’ For examples, see Berry (1975) Gort (1962), Mueller (1977,1985) and Ravenscraft and Scherer (1984). 0165.1765/87/$3.50 6 1987, Elsevier Science Publishers B.V. (North-Holland)