Mergers: Significance for structure, performance and public policy session comment

Abstract

The three papers presented here today all have a similar theme: Mergers cannot be relied on to generate good performance and government policies toward them are flawed. Two of the papers argue that current antitrust policy toward mergers represents an ill-advised shift from the past. The third focuses on government induced consolidations designed to achieve large, presumably efficient, firm sizes. I turn to this paper first. Adams and Brock present case study evidence from three European economies and Japan that supports the proposition that large is not necessarily better, particularly if it is the result of government subsidies. The evidence they present is clear, if a bit narrow. Similar arguments can be made with regard to many governmental policies that facilitate large firms, not just mergers. However, I caution that it is a large leap from the evidence presented to a policy that large agglomerations should be proscribed per se. Adams and Brock resist such a leap. I found their discussion of the widespread refusal of Japanese firms to join a government-sponsored consolidation surprising. What was it about the Japanese economy that led firms to resist consolidation, while British, French, and Italian firms participated in ill-fated government schemes? Given the historical evidence on the use of governmental power in support of monopoly, further examination is warranted. The Baldwin and Cotterill papers share a common theme: Current merger policy represents an inappropriate adoption of Chicago School theories of Antitrust enforcement. I make no claims to any special knowledge concerning Chicago School theories, but surely the proposition that mergers generally promote efficiency is only a corollary of a more general theory regarding the proper role of government policy. Restrictions on mergers (or other private actions) are justified if the net social gains, including enforcement costs are positive. Neither paper makes a convincing case that current merger policy is misguided when viewed within this framework.