Mergers, Asymmetry and Antitrust

• Author: J. L. Hexter,John W. Snow
• Published date: 01 June 1974
• DOI: 10.1177/0003603X7401900215
• Date: 01 June 1974
• Subject Matter: Article

MERGERS.

ASYMMETRY

AND

ANTITRUST

by

J.

L.

HEXTER-

and

JOHN

W.

SNOW"

Industrial

organization

theory

suggests

that

the

degree

of

seller

concentration

is

an

important

element

in

an

in-

dustry's

market

structure

and

serves

as

a

significant

though

not

unequivocal

indicator

of

the

probable

character

of

competition

in

that

industry.

It

is

generally

felt

that

high

concentration

leads

to

undesirable

market

results

in

terms

of

price-cost

margins

and

optimum

resource

allocation.

The

existence

of

high

market

concentration

is

explained

in

part

by

industry

cost

conditions.

but

it

is

generally

fel~

that

market

concentration

is

higher

than

justified

by

economies

of

scale.

While

there

are

anumber

of

factors

contributing

to

excessive

concentration

many

students

of

industrial

organization

generally

regard

mergers

as

the

principal

cause.

l

Mergers

which

adversely

affect

competi-

tion

can

be

challenged

under

Section

2

of

the

Sherman

Act

which

prohibits

monopolization

and

under

Section

7

of

the

Clayton

Act

where

they

"may

•••

substantially

•••

lessen

competition

or

•••

tend

to

create

a

monopoly"

in

any

line

of

*

Associate

Professor

of

Economics

and

Finance.

Kent

State

University.

**

Professorial

Lecturer

in

Law.

George

Washington

University

LAw

School

I

Willard

F.

Mueller.

A

Primer

on Monopoly

and

Competition

(New

York:

Random

House.

1971).

p.

65.

401

402

THE

AXTITRUST

BULLETIN

commerce.

In

seeking

to

determine

whether

a

merger

may

sub-

stantially

lessen

competition

courts

today

place

heavy

em-

phasis

on

the

issue

of

market

concentration.

2As a

general

rule

the

greater

the

increase

in

market

concentration

resul-

ting

from

a

merger,

the

greater

the

likelihood

the

courts

will

prohibit

the

merger.

Similarly

the

less

the

effect

upon

concentration

the

lower

the

probability

that

the

merger

will

be

found

to

violate

Section

7.

Of

course,

concentration

is

not

an

entirely

unambiguous

concept.

In

market

structure

analysis

concentration

gener-

ally

refers

to

both

the

absolute

number

of

firms

accounting

for

some

given

share

of

industry

output

and

the

size

distri-

bution

of

firms

in

the

industry.

A

merger

may

at

the

same

time

increase

the

share

of

the

market

held

by

the

largest

firms,

but

reduce

size

inequality

among

those

firms.

Both

aspects

of

concentration

are

important

and

should

be

con-

sidered

in

judging

the

effect

of

a

given

merger

on

market

structure.

Thus,

the

need

exists

for

different

indexes

of

concentration

to

measure

these

separate

aspects

of

the

ques-

tion,

the

share

of

the

market

held

by

the

largest

firms

and

the

size

inequality

among

these

firms.

The

measure

of

2

Brown

Shoe

Co.

v.

United

States,

370

U.S.

294

(1962);

United

States

v.

Philadelphia

National

Bank,

374

U.S.

321

(1963);

United

States

v.

Aluminum

Co.

of

America,

377

U.S.

271

(1964);

United

States

v.

Von's

Grocery

Co.,

384

U.S.

270

(1966);

United

States

v.

Pabst

Brewing

Co.,

384

U.S.

901

(1966)

.