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The effects of conglomerate mergers on concentration in manufacturing industries, 1967-1977

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  • Heimforth, Keith William

Abstract

This dissertation investigates the relationship between conglomerate mergers and changes in concentration in 193 manufacturing industries. The theoretical bases suggesting the possibility of such a relationship are explained, as are the theoretical implications of any such relationship. An ordinary least squares multiple regression model is presented for use in analyzing changes in four-firm and eight-firm concentration ratios (CR-4 and CR-8, respectively) in an attempt to infer the extent to which the practices of reciprocity, cross-subsidization, and/or mutual forbearance are used to affect the market shares of firms acquired in conglomerate mergers;Descriptive statistics for changes in CR-4 and CR-8 in the sample industries during the period 1967-77 are presented. These statistics show, inter alia, that: (1) concentration in consumer-goods industries has increased and concentration in producer-goods industries has decreased, and (2) the number of conglomerate mergers seems to be inversely related to changes in concentration. The latter result is referred to as the "dampening relation" between conglomerate mergers and changes in industry concentration;The results from estimation of the regression model are generally consistent with results from previous studies. They provide no support for theories predicting that conglomerate mergers result in increases in industry concentration, and they provide only very weak evidence that such mergers lead to decreases in concentration. Thus, the wide-spread use of reciprocity or cross-subsidization to increase the market shares of acquired firms cannot be inferred from this study. However, various further regression analyses support the existence of the dampening relation suggested by the descriptive Statistics and Probability; This result is consistent with the theory of mutual forbearance between large diversified firms.

Suggested Citation

  • Heimforth, Keith William, 1983. "The effects of conglomerate mergers on concentration in manufacturing industries, 1967-1977," ISU General Staff Papers 198301010800008718, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:198301010800008718
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    References listed on IDEAS

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    1. Mueller, Dennis C., 1977. "The effects of conglomerate mergers : A survey of the empirical evidence," Journal of Banking & Finance, Elsevier, vol. 1(4), pages 315-347, December.
    2. Goldberg, Lawrence G, 1974. "Conglomerate Mergers and Concentration Ratios," The Review of Economics and Statistics, MIT Press, vol. 56(3), pages 303-309, August.
    3. Caves, Richard E & Porter, Michael E, 1980. "The Dynamics of Changing Seller Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 29(1), pages 1-15, September.
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    6. Corwin D. Edwards, 1955. "Conglomerate Bigness as a Source of Power," NBER Chapters, in: Business Concentration and Price Policy, pages 331-359, National Bureau of Economic Research, Inc.
    7. George J. Benston, 1980. "Conglomerate Mergers: Causes, Consequences, and Remedies," Books, American Enterprise Institute, number 650455, September.
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