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

Keith William Heimforth

ISU General Staff Papers from Iowa State University, Department of Economics

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.

Date: 1983-01-01
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