Mergers as Reallocation

Boyan Jovanovic () and Peter Rousseau

The Review of Economics and Statistics, 2008, vol. 90, issue 4, 765-776

Abstract: We model merger waves as reallocation waves, and argue that mergers spread new technology in a way that is similar to that of the entry and exit of firms. We focus on two periods: 1890-1930, during which electricity and the internal combustion engine spread through the U.S. economy, and 1970-2000-the Information Age. As the model implies, reallocation did rise during both epochs. The model also implies that exits should lead mergers during a transition, but this seems to have happened more emphatically in the electrification epoch. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2008
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