Megamergers

Megamergers

E-mail debates of newsworthy topics.
May 6 1998 3:30 AM

Megamergers

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Dear Bob:

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       I was very interested to read your e-mail. Is it true that your antitrust merger test would prohibit almost nothing at all? Can you think of a merger that you would have prohibited under the antitrust laws?
       With all the giant merger deals buzzing around us, with the data showing that most megamergers are a net economic loss to society, and against the background of the 1950 law--Congress feared the growing consolidation of business, and it feared that private power would become stronger than the state itself--you think that a merger leaving only two competitors in a market is usually fine. You think the only problem with such a merger is that the two firms might collude and lessen output, and if Lockheed acquires Northrup Grumman, leaving only Boeing as a competitor, "collusion can be easily monitored by the purchaser, the U.S. government."
       I think your analysis is not just economic. I think you are applying personal political philosophy--keep the government out--and your political philosophy runs counter to the political-economy view that gave us the antitrust laws. (Economists, let alone libertarians, never supported the antitrust bills.) Do you think that there is any truth to this?
       In Boeing-McDonnell Douglas, we saw the merger of the last two commercial jet aircraft manufacturers in the United States--and two of the last three in the world. McDonnell Douglas was apparently not a real player in the market; it was not positioned to make the next generation aircraft. Therefore, the Federal Trade Commission closed its investigation. If the facts were otherwise and McDonnell Douglas had been a viable player going forward, would you have approved the merger on grounds that Airbus remained in the world market?
       It has been observed that fewness of players narrows the paths of experimentation and development and lessens the choice of consumers (as well as tempting duopolists to divide markets). Also, it provides a kind of bankruptcy insurance. As per Chrysler, do you think that the government would ever let Boeing fail? And have you noticed how Vice President Gore goes to China to sell Boeing aircraft? I wrote an essay last summer called "The United States of Boeing vs. the European Union of Airbus." Do you worry about any of this? And are you concerned that the antitrust laws as you would have them are 180 degrees away from what Congress thought it would get?

With kind regards,
Eleanor