Study Shows Mergers Have Negative Effects For Consumers

A new research paper of the effect of mergers came out the other day and it certainly has relevance to the spate of mega-mergers that have recently been announced. It has generally been assumed that horizontal mergers will increase efficiency and productivity and those effects will be less for vertical mergers. The resulting increase in efficiency and productivity will then be passed along to consumers in lower prices. The prevailing anti-trust theory maintains that this consumer benefit is enough to allow these mergers to go ahead.

The new study by economists Bruce Blonigen and Justin Pierce pretty much destroys these long-held premises. Their study of manufacturing firms showed that mergers had no significant effect on plant-level efficiency and productivity and they actually resulted in increased markups of anywhere between 15 and 50 percent. So, there were no productivity gains and the price of the manufactured good actually went up. These effects were virtually the same whether the merger was a horizontal or vertical merger and whether it was within an industry or across industries.

Admittedly, this study only looked at the manufacturing industry and it may not apply to other sectors. But it blows a whole in the anti-trust theory that was developed by Robert Bork and others in the 1980s which held that a merger or takeover should be allowed to go ahead if some benefit accrued to the consumer. In most cases, companies pointed to the "synergies" and "efficiencies" that would result in lower consumer prices as a rationale for allowing the merger. For most Americans, that has resulted in fewer choices and higher prices and the consolidation of market power in a handful of companies across all major industries. This study certainly adds more fuel to the idea that these latest mergers deserve intense scrutiny. and a total re-thinking of existing anti-trust theory.