Horizontal Mergers and Acquisitions

This chapter focuses on horizontal mergers and acquisitions—(M&A)s—and various possible government responses to them. Section 11.1 lists (1) the eight ways in which such (M&A)s can increase their participants’ profits without reducing the absolute attractiveness of the most-attractive offers against which they will have to compete by producing effects that would tend to render the (M or A) profitable even if it would have been economically inefficient in an otherwise-Pareto-perfect economy (8 “Sherman-Act-licit ways” in which a horizontal [M or A] can increase its participants’ profits.) and (2) the 8 Sherman-Act-illicit ways in which a horizontal (M or A) can increase its participants’ profits. Section 11.2 analyzes the determinants of the amounts by which any horizontal (M or A) will increase its participants’ profits in each of the 16 ways in which it can do so. Section 11.3 analyzes the determinants of the economic efficiency of particular horizontal (M&A)s and the ability of a liberal-moral-rights-constrained government to increase economic efficiency by responding to such (M&A)s. Section 11.3 has several non-standard characteristics: inter alia, (1) it takes account of the fact that horizontal (M&A)s can affect the intensity not only of price-competition but also of the competition that firms wage by creating additional product-variants, distributive outlets, capacity, and inventory (by making quality-or-variety-increasing [QV] investments) and doing production-process research [PPR]); (2) it executes non-standard analyses of the ways in which horizontal (M&A)s can affect the intensity of price-competition (by affecting the resulting firm’s and its rivals’ competitive advantages and contrived and natural-oligopolistic margins) and investment-competition in the relevant portion of product-space (by affecting various barriers to entry it distinguishes, various barriers to expansion it distinguishes, the positive monopolistic investment-incentive a firm may have to invest in a portion of product-space in which it is already operating, and the monopolistic or natural-oligopolistic investment-disincentives a firm may have to invest in a portion of product-space in which it is already operating); (3) it takes account of the impact that a horizontal (M or A) or a government response to such an (M or A) will have on categories of economic inefficiency that conventional analyses ignore—for example, on the amount of economic inefficiency that the relevant economy generates because (A) given the amount of resources it devotes to QV-investment creation, it devotes too many resources to QV-investment creation in some portions of product-space relative to the amounts it devotes to QV-investment creation in other portions of product-space, (B) given the amount of resources it devotes to PPR, it devotes too many resources to PPR in some portions of product-space relative to the amounts it devotes to PPR in other portions of product-space, (C) it misallocates resources among QV-investment-creating, PPR-executing, and unit-output-producing uses, and (D) its operation generates poverty and material inequality, which is relevant because (for various reasons it specifies) poverty and material inequality increase economic inefficiency; and (4) it analyzes the impact of any horizontal (M or A) on any category of economic inefficiency in a way that takes ex ante economically efficient account of The General Theory of Second Best—inter alia, by predicting (A) the profits that the resource allocations in all categories that the horizontal (M or A) or government response to that (M or A) elicits yields the resource allocators that make them and the losses that the resource allocations that the horizontal (M or A) or government response to that (M or A) deters would have imposed on the deterred potential resource allocators and (B) the different ways (one for each category of resource allocations) that the economy’s various Pareto imperfections (and sometimes other factors) interact to cause or not cause the profit and loss figures just referenced to diverge from the economic efficiency of the elicited or deterred resource allocations (in my terminology, interact to “distort” or “not distort” the relevant private figures). Section 11.4 analyzes the conditions under which horizontal (M&A)s will be liberal-moral-rights-violative and the ability of government to instantiate the liberal conception of justice by responding appropriately to horizontal (M&A)s. Section 11.4 argues that a horizontal (M or A) is liberal-moral-rights-violative if (1) its participants’ ex ante perception that it was at least normally profitable was critically affected by their belief that it would or might yield them Sherman-Act-illicit profits or (2) ex ante, its participants believed that the (M or A) would increase the profits the resulting firm could realize by engaging in Sherman-Act-illicit conduct (for example, horizontal price-fixing and/or predation) and intended to take advantage of that opportunity. Section 11.4 also reviews the data-problems and liberal-moral-rights constraints that affect the ability of any government of a liberal-moral-rights-based State to deter liberal-moral-rights-violative horizontal (M&A)s. Section 11.5 analyzes the impact of horizontal (M&A)s on the instantiation of various egalitarian conceptions of the moral good and the ability of the government of a liberal-moral-rights-based State to further the instantiation of these egalitarian conceptions of the moral good by responding appropriately to horizontal (M&A)s. Section 11.5 points out that the impact of horizontal (M&A)s and government responses to them on total utility depends on their impact on economic efficiency and material equality, that their impacts on the instantiation of the equal-utility, equal-resource, and other equal-opportunity conceptions of the moral good depend solely on their impacts on material equality and that not only data-problems but also the constraints that liberalism imposes on the government of a liberal-moral-rights-based State limit the ability of any such government to instantiate any of these egalitarian conceptions of the moral good by responding to horizontal (M&A)s.