ABSTRACT
The United States experienced a wave of conglomerate mergers in the 1960s, driven in part by overly restrictive antitrust policies toward horizontal and vertical mergers. In response, the U.S. antitrust agencies and courts developed a number of theories of competitive harm with colorful names like deep pockets, reciprocal dealing, and entrenchment.1 As the Chicago School taught us the central importance of consumer welfare and efficiency in antitrust analysis,2 these theories faded away.3 This process was speeded by the failure of most large conglomerates to deliver shareholder valueconglomerates underperformed their rivals in market after market, contrary to the fears of some theorists. After fifteen years of painful experience with these now long-abandoned theories, the U.S. antitrust agencies concluded that antitrust should rarely, if ever, interfere with any conglomerate merger.4 The U.S. agencies simply could not identify any conditions under which a conglomerate merger, unlike a horizontal or vertical merger, would
likely give the merged firm the ability and incentive to raise price and restrict output. Conversely, the U.S. agencies recognized that conglomerate mergers have the potential as a class to generate significant efficiencies. These potential benefits include: providing infusions of capital; improving management efficiency either through replacement of mediocre executives or reinforcement of good ones with superior financial control and management information systems; transfer of technical and marketing know-how and best practices across traditional industry lines; meshing of research and distribution; increasing ability to ride out economic fluctuations through diversification; and providing owners-managers a market for selling the enterprises they created, thus encouraging entrepreneurship and risktaking.5
