Conglomerate Mergers and Acquisitions

This chapter addresses conglomerate (M&A)s and various possible government responses to them. This chapter focuses on the differences between and some underappreciated similarities of the horizontal (M&A) analyses just executed and their conglomerate (M&A) counterparts. Thus, this chapter points out that, although conglomerate (M&A)s cannot yield the resulting firm profits by inducing its participants to stop engaging in price competition against each other by creating a resulting firm that does not compete against itself when pricing or advertizing its participant’s products or withdraws one or more investments its participants had made in a portion of product-space in which another participant was operating, such (M&A)s can yield its participants profits in all the other Sherman-Act-licit and Sherman-Act-illicit ways in which horizontal (M&A)s can do so, in part because conglomerate (M&A)s can enable resulting firms that face conglomerate rivals that operate in multiple portions of product-space occupied by individual participants to practice contrived-oligopolistic and predatory pricing more cost effectively. (Such conglomerate [M&A]s may also enhance the ability of the resulting firm’s rivals to engage in such conduct.) This chapter also analyzes in detail the factors that determine the relevant competitive impacts that conglomerate mergers have because they have been executed by an established firm and a potential competitor—explains why limit-pricing “theory” cannot bear scrutiny and why firms that face an effective potential competitor will virtually always find it most profitable either to allow entry to occur or to make a limit investment to deter entry.