Mergers, Marriage, and Monopoly: What Matrimony Can Teach Us about Corporate Acquisitions
Why does the boy ask the girl to the dance? He does so because he thinks he will be better off if he “merges” with her, rather than remain on his own. If she agrees, why does she do so? For exactly the same reason: the “merger” with him, she assesses, will be to her benefit. If she declines, it is due to the fact that she thinks she will be better off on her own or in a merger with someone else.
Let us suppose that the boy, A, and the girl, B, decide to “merge.” Should they be allowed to do so by law? It seems difficult to know why it should be prevented, given proper ages, etc. The deontological argument is sound. Consenting adults certainly have the right to “merge.”
But what about economic welfare? Will the economy be better or worse off if this linkage between A and B takes place? There would appear to be no reason to suppose any loss in economic welfare. But there are some that are claimed. For example, a young woman, C, would have liked to “merge” with A. A can no longer do so, since he is now, let us say, in a monogamous marriage with B. A young man, D, would have liked to “merge’ with B, but she is now unavailable for the same reason.
We have only begun to probe the downsides of the relationship between A and B. When these two merge, they might purchase less from E, reducing his well-being. Or, the AB couple might sell more to F, reducing the price of the good or service in question, thus harming G, H and I, who are competing with that firm.
So, should the AB merger therefore be prevented outright, or, at the very least, regulated by the government, and in the “public interest”? Whether or not this public policy should be implemented would be determined by most economists on the basis of whether the benefits to AB outweigh the costs to C, D, E, F, G, H, I and whoever else they can take account of.
The answer of whether to regulate such mergers is “Yes” if you want to boost the salaries of economists and lawyers who specialize in antitrust law and make sure they are never unemployed. I once served as an economic expert witness in an antitrust case; let me assure you, the pay is excellent.
A boyhood friend of mine, a college professor, started out with a specialty in money, banking, and macroeconomics. He once told me: “There’s no money in (concentrating on) money. The real money is in antitrust economics.” Too true.
But the answer is “No.” No mergers should ever be prevented. Businesses uniting in a merger is no different than individuals doing so, romantically, at least not from the perspective of rational economics.
This is not merely a theoretical issue. As we speak—well, write—members of the professions of law and economics are both having a field day.
In 2020, Meta Platforms, owner of Facebook, acquired Giphy, a producer of social media animated images. The reported price tag was $400 million. This was approved by the authorities. No such takeover could have occurred were this not the case. But now the UK top competition bureaucrats, in their infinite wisdom, have determined that this merger was not in the public interest after all. In effect, they found that the costs were outweighed by the benefits. Other mergers in the news include Peabody Energy Corp. and Coronado Global Resources; Booz Allen Hamilton and Ever Watch; United Healthcare and Change Healthcare; U.S. Sugar and Imperial Sugar; Microsoft and Activision Blizzard; Broadcom and VMWare; Oracle and Cerner; AMD and Xilinx; Prologis and Duke Realty; Orange and Grupo MásMóvil; DSM and Firmenich; Adobe and Figma.
The problem in all these cases is that the central planning authorities do not have any data that would enable them to determine whether or not these business marriages are or are not in the public interest (whatever that means).
They equate number of competitors with amount of competition; the more of the first, the more of the second. However, there are only two competitors in the boxing ring, and anyone who has ever entered one of them for fisticuffs knows full well how truly competitive it is.
What about outright monopoly? The fear of this phenomenon is much of what drives anti-merger sentiment. Economists who really should know better maintain that the company with “monopoly power” will cut back on quantity in order to jack up prices; this will hurt the consumer and bring about economic inefficiency since there will be a “deadweight loss.”
This is akin to saying that Mike Tyson, when he was heavyweight champion, only fought, say, twice per year, when he should have engaged in professional pugilism once per month. The extra ten fights which he refused to engage in (that evil monopolist) would have cost him less in blood, sweat, and tears than the benefits thereby accruing to the consumers.
Anyone who can seriously believe in such balderdash should apply for a PhD degree at a traditional university. This is nonsense on stilts. There is simply no way for anyone to know whether the additional pugilistic exhibitions would have cost Iron Mike more than the benefits derived from the consumers. Anyone with the chutzpah to think he could make any such determination on a rational basis ought to have his economics license canceled (assuming there was such a thing; happily, there is not).
The view of most members of the economics profession is that monopoly is a “market failure.” The monopolist refuses to engage in as much commercial interaction as he should. If they were to carry through on the logic of this misbegotten theory, they would have to also oppose monogamous marriage. Why? That is because under such matrimonial arrangements both partners refuse certain interactions with other people. Monogamous marriage is just as much a “market failure” as is monopoly, and for the exact same reason.
What about the infamous 1911 Standard Oil case (Standard Oil Co. of New Jersey v. United States) in which John D. Rockefeller was accused of engaging in local price wars, driving out competition, and then boosting prices. This economic illiteracy was refuted by John S. McGee way back in 1958. John D. earned his big bucks by more efficiently processing oil. The alternative explanation believed by practically everyone was false and illogical. If it had indeed occurred, the targets of his price cutting only had to buy oil from Standard Oil and then reopen when that company supposedly raised prices.
There is no case for disallowing A and B to unite, and this goes for all mergers in business as well.
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