Measuring Conglomerate Concentration: A Proposal

• DOI: 10.1177/0003603X7201700307
• Date: 01 September 1972
• Published date: 01 September 1972
• Author: Janos Horvath
• Subject Matter: Article

MEASURING CONGLOMERATE CONCENTRATION:

A PROPOSAL

by

JANOS

HORVATH-

THE ABSENCE OF HARD DATA AND EVIDENCE

Super-concentration resulting from the merger trend of recent

years has become a matter of concern in various circles. The

Justice Department moves to block giant mergers, the Federal

Trade Commission launches broad investigations, Chairman Celler

of the House Judiciary Committee ponders the need for tougher

antitrust laws. A new corps of studies suggest

that

monopolistic

business practices misallocate resources, retard innovation, accel-

erate inflation, and redistribute income.IOther writers are less

disturbed because they accept the increase in the size of enterprise

as adaptation to new competitive conditions, such as technological

change, industrial research, internal financing, and large unions.'

*Professor of Economics, Butler University, Indianapolis, Ind.

lOne

critic,

William

G. Shepherd, suggests

that

monopoly

practice "has probably levied major avoidable costs on the econ-

omy, costs extracted through internal inefficiency in companies,

through misallocation of resources, and through retarded innova-

tion. These costs have probably

not

been below the equivalent of

several

percent of national income in recent years," (i.e;; some

$20 billion or more annually) and "are almost certainly

not

dwindling."

William

G. Shepherd, "Conglomerate Mergers in Per-

spective," Antitrust Law &Economics Review, Fall 1968, pp.

15-32.

2A leading advocate of this view, Ronald H. Coarse, writes:

"The acquiring of an enterprise by a firm which has interests in

other unrelated enterprises, unlike a horizontal merger, has no

direct anti-competitive effects." George S. Stigler, et al., "The

Report of the Stigler Task Force on Productivity and Competi-

tion," Antitrust Law &Economics Review, Spring 1969, p. 45. As

another example, Ann Horowitz and Ira Horowitz of Indiana

University suggest in their article entitled "Concentration, Com-

petition, and Mergers in Brewing," that mergers, depending on the

nature of demand and supply condition in the industry, can

strengthen competition.

John

Frederick Weston and Sam Peltzman

(eds.), Public Policy Toward Mergers, Pacific Palisades, California,

Goodyear Publishing Company, 1969, pp. 45-46.

885

886

THE

ANTITRUST

BULLETIN

Notwithstanding the broad variety of views and motives, few

persons would disagree with former FTC Chairman Casper

Wein-

berger who, in launching a potentially far-reaching investigation of

concentration, designated

"the

absence of hard data and evidence

[as being] the real problem."?

Indeed, the question is whether or not we are witnessing a

decline

jOf

competitive markets and an upsurge of a merger move-

ment 'which involves the aggregation of a myriad of disparate

businesses into a few huge conglomerate units. This prevalence of

conflicting opinions about the potential leverage of conglomerate

power intimates vacillation in matters of policy. Some writers even

see havoc as seemingly contradictory directions by courts and

administrators leave any type of merger or acquisition open to

litigation. Not only must a firm concern itself with future mergers,

but it must also ponder the probability of actions over past

mergers, which could be challenged at any future time. In the

words of Professor Markham of Princeton,

"the

big issue, of

course, is what logically should be the specific objectives of

antitrust policy and at what price should they be bought. The

question is not likely to be resolved

....

"4

The lack of consistency and predictability in antitrust policy

leaves a wide grey area.

If

illumination could be brought to this

field, then the range of dispute would substantially diminish.

There seems to linger a melancholic resignation, however, that the

analytical rigor of economic theory cannot be applied to problems

of industrial concentration. The elegantly refined theories of com-

petition and monopoly with their several ramifications have not

been matched by a similarly integrated set of concentration mea-

sures. Yet there is no reason to doubt that the demand for such an

analytical device is likely to induce enterprising minds to continue

innovating. Along these lines, a modest objective of this paper is to

propose a new comprehensive concentration index for cases of

3

Wall

Street Journal, 13 July 1970, "FTC

Will

Broaden

Study of Concentration in Industry to Autos, Steel and 4 Others."

4Richard E. Low (ed.), The Economics

of

Antitrust-

Competition and Monopoly, Englewood Cliffs, N.J., Prentice-Hall,

1969, p. 85.