Chapter 8: Horizontal Mergers and Market Dominance
Utton2 02 chap 5 4/12/02 16:20 Page 171 8 Horizontal mergers and market dominance I Introduction According to Dr Johnson, patriotism is the last refuge of a scoundrel. According to some economists, merger is the last refuge of corporate conspirators. If the laws reviewed in the previous chapter prevent independent firms from colluding to raise prices, then, in the last resort, they may give up their separate identities and become a single enterprise to achieve the same purpose. The first point to note about mergers, therefore, is that those between sizeable firms operating in the same market, horizontal mergers, are likely to have the most direct impact on market power. Mergers between firms operating at different stages in the production process (as with a food manufacturer merging with a food supermarket chain) may have consequences for market power, but we postpone consideration of such vertical mergers until Chapter 9. The effects of mergers between firms operating in quite different markets (for example an electronics company merging with a clothing manufacturer) have been hotly disputed in the past but are now generally regarded as having little or no market power effects. Thus we confine ourselves in this chapter to horizontal mergers. Secondly, in any one year, many mergers may occur for a wide variety of reasons. Some may simply arise because the founding owner of a company wishes to retire. Conversely, others may come about because two firms of modest size wish to pool their resources to increase their rate...
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