Do We Want a New, Tough Antimerger Law?

• Published date: 01 December 1979
• Date: 01 December 1979
• DOI: 10.1177/0003603X7902400405
• Subject Matter: Article

The Antitrust Bulletin/Winter 1979

DO

WE

WANT

ANEW,

TOUGH

ANTI MERGER

LAW?

by

DENNIS C. MUELLER*

Congress has on three occasions tried to deter the growth

of corporate size and power: in 1890 with the passage of the

Sherman Act, in 1914 with the passage of the Clayton Act,

and in 1950 with the Celler-Kefauver Amendment to Section

7 of the Clayton Act. Today it finds itself once again confront-

ed with the issue of whether new legislation is needed to

retard corporate growth.

The Sherman Act was passed in the midst of what is prob-

ably still today the greatest merger wave in this country's his-

tory. Although not directed solely at mergers, one of the goals

of Section 2 was to stop the creation of monopolies via mer-

ger, as was occurring in numerous industries

at

the time. In

this objective it was successful as Northern Securities (1904)

and other cases were soon to prove, but the Act could not

prevent mergers bringing together companies of less than

monopolistic dimensions. Recognition of this contributed to

the impetus behind the second major effort to curtail corpor-

ate power in 1914.

The Clayton Act differs from its predecessor by trying to

halt and constrain monopoly power "in its incipiency" rather

than dealing with it in its fully developed state as the Sher-

man Act does. Section 7 directly prohibits mergers

that

would

"substantially lessen competition" or "tend to create" a monop-

oly.

A cavernous loophole in the antimerger section of the

1914 statute and restrictive judicial interpretations made it an

ineffective constraint on corporate mergers. A second great

merger wave took place in the 1920's in spite of the apparent

attempt by Congress in 1914 to put an end to such waves.

*Professor of Economics, University of Maryland, College Park,

Md.

@1980 by Federal Legal Publications, Inc.

807

808 THE ANTITRUST BULLETIN

In the late 1940's, the Federal Trade Commission pre-

sented evidence suggesting

that

a new merger wave was in

process. This and other events of the day led to the Celler-

Kefauver Amendment to Section 7 of the Clayton Act closing

the Act's loophole. Subsequent enforcement and judicial inter-

pretations have produced a dramatic reduction in the number

and significance of horizontal and vertical acquisitions.1

Nevertheless, starting in the 1950's and cresting in the late

1960's, the United States experienced its third great merger

wave. Although large horizontal and vertical acquisitions

could be and were successfully challenged under the Celler-

Kefauver Amendment, most conglomerate mergers appear to

be beyond this statute's reach, and it was these

that

made up

the bulk of the third great wave.

Chart 1presents data on

the

number of acquisitions and

volume of assets acquired by year since 1950. The precipitous

drop in merger activity following 1968 coincides with the col-

lapse of the 1960's bull market and the onset of the recession

induced by the first Nixon administration. This procyclical

pattern has characterized all three major merger waves.

In recent years merger activity has again started upward.

This is even more apparent in chart 2, which includes data for

1978. (Data in charts 1 and 2 are from different sources and

are not directly comparable.) In 1978, the total value of all

major corporate mergers was $34.2 billion, up 64 percent from

1977's $22 billion.

It

is this recent surge of merger activity

that

has ignited interest in new antimerger legislation.

There is little doubt

that

the

first two large merger waves

led to increases in both overall and industry concentration lev-

els. Since the 1950 amendment horizontal merger activity has

been inconsequential, and industry concentration levels have

exhibited no pattern of change

that

seems to be merger relat-

ed."

1For a review of merger legislation see, F.M. Scherer, Industrial

Market Structure and Economic Performance, Rand McNally:

Chicago, 1971, pp. 473-490.

2W.F. Mueller and

L.G.

Hamm, "Trends in Industrial Market

Concentration, 1947 to 1970," Review

of

Economics and Statistics,

56, Nov. 1974, pp. 511-520.