Conglomerate mergers, internal organization and competition policy

Abstract

A significant feature of recent developments in industrial structure and in business strategies has been the growth of conglomerate firms, often as a result of mergers. These raise important issues concerning their effects on competition and economic efficiency. These issues are not always handled with confidence or consistency by the regulatory authorities, as analysis of relevant reports by the Monopolies and Mergers Commission indicates. The paper argues that it is important to explore the nature of internal organization and resource allocation decisions within conglomerates as an aid to predicting their likely economic effects. It is shown that Williamson's M-form model is not an effective description of the organization and practices of all conglomerates. Rather, it is suggested that three main types of internal economic systems can be identified, each of which has different organizational features and gives rise to different predictions about the overall effects on competition and economic efficiency.