The Bigness Complex Redux: Horizontal Ownership Concentration and Efficiency Conundrums

• Author: Sumit K. Majumdar
• Published date: 01 December 2020
• Date: 01 December 2020
• DOI: http://doi.org/10.1177/0003603X20950231
• Subject Matter: Article

Article

The Bigness Complex Redux:

Horizontal Ownership

Concentration and

Efficiency Conundrums

Sumit K. Majumdar*

Abstract

This cliometric study evaluates efficiency outcomes from America’s telecommunications sector

acquisitions, based on data for 1988–2001, as the sector’s horizontal acquisition processes have

repeated themselves. Sector ownership has been comprehensively reconcentrated. Concepts from

the size and structural capital literatures enable defining mechanisms to establish causality between

horizontal ownership influence and efficiency. For the measure of size, smaller-sized firms display

positive efficiency impacts, while medium-sized firms display lower performance than average and

large-sized entities display substantially lower performance. Entities experiencing a lesser level of

structural capital influence enjoy better performance, while entities experiencing a medium level of

structural capital influence experience lower performance than average and entities experiencing a

high level of structural capital influence experience much lower efficiency. The evidence implies that

negative motivations associated with size and power acquisition may be spilt over to acquired entities,

and increasing negative size impact suggests these motives have strengthened as larger controlling

entities have brought more units under their ambit. Restraining concentration is a fundamental policy

concern to restore competitive economy fundamentals and prevent ruining America’s entrepreneurial

spirit.

Keywords

acquisitions, efficiency, horizontal ownership concentration, power, size, structural capital

I. Introduction

This article deals with a cliometric evaluation of efficiency outcomes from the occurrence of serial

acquisitions in a key sector of America’s economy and assessing whether permitting such deals has

* University of Texas at Dallas, Richardson, TX, USA

Corresponding Author:

Sumit K. Majumdar, University of Texas at Dallas, 800 W Campbell Rd., Richardson, TX 75080, USA.

Email: majumdar@utdallas.edu

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2020, Vol. 65(4) 628–652

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been justified.

1

Using historical data, the analysis deals with the issue of performance improvements,

2

as acquisition processes have repeated themselves in the U.S. telecommunications sector.

3

These

consolidations had taken the form of acquisition deals between holding company owners of local

exchange carriers, leading many holding companies to lose identity while others became bigger. These

deals were expected to be beneficial.

4

Resultant size- and power-related outcomes have been

evaluated.

The outcome evaluated has been operating companies’ efficiency levels.

5

The literature

6

suggests

that the impact of horizontal ownership spread is negative. Also, one’s a priori premise is that negative

outcomes are probably observable. Thus, in the light of Yogi Berra’s eternal words, that “It’s deja vu

all over again,” what warrants another analysis? This article contributes significantly over previous

works. First, it tracks explicit horizontal ownership changes, over a sustained period, for the sector

operating firms and associates their evolving ownership identities with specific holding companies’

ownership changes. The holding company numbers have reduced over time, denoting concentration

occurrence. Progressively fewer holding company controllers, respectively, spreading horizontal own-

ership tentacles widely, have survived. Each survivor has become increasingly larger. Those surviving

have become the sector oligopolists.

Second, temporally changinghorizontal ownership indicators are linked withyear-wise and firm-wise

performance indicators, for each operating company observation, to tease out exact acquisition-specific

impacts.

7

This analysisgenerates metricsof how evolving horizontalownershipconcentration and coming

under the umbrella of emergent local market oligopolists have explicitly influenced observation-level

1. See EDWIN A. ROSENBERG,TELECOMMUNICATIONS MERGERS AND AC QUISITIONS:KEY POLICY ISSUES AND OPTIONS FOR STATE

REGULATORS (1997) for full depictions of merger types, and Sumit K. Majumdar et al., Mergers Motives and Technology

Deployment: A Retrospective Evaluation, 65 ANTITRUST BULL. 120 (2020), for descriptions of merger types and data for the

period 1988–2001.

2. A determining factor behind deals’ approvals has been efficiency enhancement. The guidelines codified the idea competition

as influencing efficiencies; see Joseph Farrell & Carl Shapiro, Horizontal Mergers: An Equilibrium Analysis, 80 AM.ECON.

REV. 107 (1990); Joseph Farrell & Carl Shapiro, Scale Economies and Synergies in Horizontal Merger Analysis, 68

ANTITRUST L.J. 685 (2001); See also William Kolasky & Andrew R. Dick, The Merger Guidelines and the Integration of

Efficiencies into Antitrust Review of Horizontal Mergers, 71 ANTITRUST L.J. 207 (2003), at 209, 211.

3. The analysis extends prior similar but not identical work. It is based on the same historical data as used previously. See

Majumdar et al., supra note 1; see also Sumit K. Majumdar et al., Mergers and Wages in Digital Networks: A Public Interest

Perspective, 19 J. INDUS.COMP.&TRADE 583 (2019); Sumit K. Majumdar, Strategic Responses to Entry in Communications

Markets: Evaluating Financial Consequences for Incumbents, 64 ANTITRUST BULL. 214 (2019). Where relevant, citations to

these are given throughout this article.

4. Calvin Goldman et al., The Role of Efficiencies in Telecommunications Merger Review, 56 FED.COMM . L.J. 87 (2003).

5. For thoughts on dynamic efficiency, see Joseph F. Brodley, The Economic Goals of Antitrust: Efficiency, Consumer Welfare,

and Technological Progress, 62 N.Y.U. L. REV. 1020 (1987).

6. Gregor An drade et al., New Evidence and Perspe ctives on Mergers,15J.E

CON.PERSP. 103 (2001); Jonathan Baker,

Contemporary Empirical Merger Analysis, 5G

EO.MASON L. REV. 347 (1997); William S. Comanor, Vertical Mergers,

Market Power, and the Antitrust Laws, 57 AM.ECON.REV.254 (1967); Farrell & Shapiro, supra note 2; JOHN E. KWOKA,JR.,

MERGERS,MERGER CONTROL AND REMEDIES:ARETROPSECTIVE ANALYSIS OF U. S. POLICY (2015); Marina Martynova & Luc

Renneboog, A Century of Corporate Takeovers: What Have We Learned and Where Do We Stand? 32 J. BAN.&FIN. 2148

(2008); Dennis Mueller, A Theory of Conglomerate Mergers, 83 Q.J. ECON. 643 (1969); Richard Roll, The Hubris Hypothesis

of Corporate Takeovers, 59 J. BUS. 197 (1986); Lars-Hendrik Roller et al., Efficiency Gains from Mergers,inEUROPEAN

MERGER CONTROL:DOWENEED AN EFFICIENCY DEFENSE 84 (Fabienne Ilzkovitz & Roderick Meiklejohn eds., 2006); Frederick

M. Scherer, Corporate Takeovers: The Efficiency Arguments, 2J.E

CON.PERSP. 69 (1988); Frederick M. Scherer, A New

Retrospective on Mergers, 28 REV.INDUS.ORG. 327 (2006); WILLIAM G. SHEPHERD,THE ECONOMICS OF INDUSTRIAL

ORGANIZATION (1979).

7. As related to acquisitions, efficiency has been a core idea. Based on the classic idea advanced by Oliver Williamson, that even

if a merger were to be allocatively inefficient, because merged firms could rais e prices, provided dynamic productive

efficiencies were engendered these post-acquisition efficiencies would outweigh negative market power effects. See

Oliver Williamson, Economies as an Antitrust Defense: The Welfare Trade-Offs, 58 AMER.ECON.REV. 18 (1968).

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