Merger Motives and Technology Deployment: A Retrospective Evaluation

• Published date: 01 March 2020
• Date: 01 March 2020
• DOI: 10.1177/0003603X19898903
• Author: Sumit K. Majumdar,Ulku Yaylacicegi,Rabih Moussawi
• Subject Matter: Articles

Article

Merger Motives and

Technology Deployment:

A Retrospective Evaluation

Sumit K. Majumdar*, Rabih Moussawi**, and Ulku Yaylacicegi***

Abstract

The nature of post-merger technological progress outcomes is unclear, with theoretical and empirical

literature being inconclusive and equivocal. We contend that merger motives materially drive post-

merger outcomes and that post-merger outcomes vary significantly because merger motives vary.

Hence, assessments of post-merger outcomes should take into account such motives, by the use of

suitable statistical constructs. Our retrospective study has empirically assessed post-merger tech-

nology deployment patterns in the US telecommunications industry over a considerable recent his-

torical period of major institutional changes. The events have provided information enabling us to

conduct a detailed evaluation of the relative outcomes of differently motivated mergers under clean

natural experiment conditions. Mergers have been classified as those undertaken for consolidation,

financial, and market exploitation reasons. We have found consolidation and market exploitation

motivated mergers to have had a positive impact, resulting in materially greater technology deploy-

ment outcomes for firms experiencing these mergers. The largest category of mergers that the firms

have engaged in have been of the liquidity-seeking type, and such liquidity-seeking mergers have

resulted in materially lower levels of technology deployment outcomes. On balance, we unequivocally

conclude that negative lower technology deployment outcomes have outweighed the positive higher

technology deployment outcomes. Such results should meaningfully influence agencies’ approaches in

deciding whether or not to permit important sector mergers under review.

Keywords

communications sector, merger motives, technology deployment

I. Introduction

Whether mergers positively influence or retard technological progress is a crucial antitru st topic.

Aggregate growth would be impeded, and welfare losses created, should merging firms cut down

post-merger technology spending. Yet, it is unclear if mergers foster or retard technological progress.

*University of Texas, Dallas, TX, USA

**Villanova University, Philadelphia, PA, USA

***University of North Carolina, Wilmington, NC, USA

Corresponding Author:

Sumit K. Majumdar, University of Texas, Dallas, TX 75080, USA.

Email: majumdar@utdallas.edu

The Antitrust Bulletin

2020, Vol. 65(1) 120-147

ªThe Author(s) 2020

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DOI: 10.1177/0003603X19898903

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The apposite bon mot is that it depends!

1

Unsurprisingly, thus, considerable confusion abounds as to

whether or not to permit mergers, as post-merger technology deployment outcomes are extremely

difficult to forecast.

2

Concomitantly, in contemporary industries, competitive conditions are vastly different from what

they were a few decades ago. Of course, permitting mergers resulting in positive post-merger tech-

nology deployment is the optimal outcome. It is the ultimate win–win solution. But, it is a rare and

unpredictable occurrence. Agencies may permit some mergers, anticipating that post-merger positive

deployment outcomes will occur . These may not actually materialize . Conversely, agencies may

disallow mergers, for many causes in which hypothetical outcomes could be negative, though the

post-merger technology deployment outcomes might well have turned out to be positive.

There are considerable difficulties in getting forecasted merger outcomes right. Yet, such forecasts

are needed. We offer one approach that involves the simple premise that merger outcomes vary with

merger motives.

3

Hence, a step back is required. Merger purposes matter.

4

Firm idiosyncrasies are a

key element underlying merger strategies and outcomes. In order to understand mergers, to judge

whether to permit a merger or not and assess outcomes, such as post-merger technology deployment

impact, attention has to be paid to mergers’ strategic motives. Then, the impact of such putative

motives can be suitably modeled for assessment purposes. Firm heterogeneity and the unique associ-

ated temporal and spatial specificities affect merger intentions. The atmosphere surrounding a partic-

ular phase of time and context, associated with a geographic and institutional environment, influences

firms’ motives, merger decisions, and post-merger outcomes. Therefore, pre- and post-merger assess-

ments have to account for dynamic merger motives.

The analysis considers how mergers motivated by different considerations have influenced tech-

nology deployment outcomes in the communications sector. Building on a considerable amount of

previous sector analyses, for the universe of firms providing the primary communications backbone for

the consumer, we have conducted a retrospective evaluation of all of the local exchange mergers that

have taken place in the industry in the United States between 1988 and 2001.

In their time, these have been the world’s largest mergers. As such, the merger events assessed have

been the longest episode, stretching over the period of almost two decades, of the largest serial

consolidations, also for their time, to have occurred in contemporary economic history. These histor-

ical events have provided excellent information, based on historical data, of a detailed and granular

variety, and under ideal natural experiment conditions. The facts have enabled a fully comprehensive

retrospective evaluation of how differently motivated mergers may have influenced communications

technology deployment. The generalizations are conceptual.

II. Merger and Technology Deployment

A. Theory

The economics literature contains certain key arguments related to why firms merge. First, there is a

positive mergers and technology deployment aspect via the benefits of monopolization. Mergers create

potential market concentration and promote technological progress. Schumpeterian ideas have

1. Michael Katz & Howard Shelanski, Mergers and Innovation, 74 ANTITRUST L. J. 1 (2007).

2. Fay Kartner, Merger Remedies: Fostering Innovation? 12 EURO.COMP. J. 298 (2016); Andrea Locaro et al., An Innovation In

Merger Assessment? The European Commission’s Novel Theory of Harm in the Dow/DuPont Merger,32ANTITRUST 100

(2017).

3. Sumit K. Majumdar, Strategic Responses to Entry in Communications Markets: Evaluating Financial Consequences for

Incumbents,64A

NTITRUST BULL. 214 (2019).

4. PETER O. STEINER,MERGERS:MOTIVES,EFFECTS,POLICIES (1975).

Majumdar et al. 121