The fundamental problem with a lot of the doomsday predictions about mergers is that we simply don’t know how a lot of them will turn out for sure.
Over the weekend, Becket Adams wrote about the false alarms from environmentalists over the years. Economists at the International Center for Law and Economics have written a paper looking back at a different species of false alarm that we often hear from the media: doomsday mergers.
Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey Manne recount the predictions made about six mergers that were allowed to take place despite considerable backlash from progressives. They looked at Amazon’s purchase of Whole Foods, consolidation in the beer industry, Bayer’s purchase of Monsanto, Google’s purchase of Fitbit, Facebook’s purchase of Instagram and WhatsApp, and Ticketmaster’s merger with Live Nation.
“Our retrospective analysis shows that many of the alarmist predictions of the past were completely untethered from prevailing market realities, as well as far removed from the outcomes that emerged after the mergers,” they write.
They look at indicators such as stock prices, market share, and financial performance to evaluate the claims made by progressives before the mergers took place. The paper has copious citations to news reports, academic papers, and relevant statistics to back up their analysis.
For example, in the beer industry, AB InBev merged with SABMiller in 2016, bringing many U.S. beer brands into one corporation. Those companies were themselves the result of prior major mergers (South African Brewing with Miller in 2002, SABMiller with Molson Coors in 2007, and Anheuser-Busch and InBev in 2008). Despite those mergers, and the massive company that resulted, the market share of major beer brands has declined in recent years due, in part, to the separate development of the craft-brewing market.
Or maybe it wasn’t entirely separate after all. The paper says:
Azar & Barriola (2022) study the effects of the merger on the craft-beer market. They find that, in the average market over the four years following the merger, the merger led to over an 11% increase in the number of craft brewers, while the number of products per craft brewer remained the same. Since most of these entrants were small, the market shares were largely unaffected by entry. They point to the price increases as the driver of entry into the craft market, as it made entry profitable. This goes against a common theory that larger firms with more power will deter entry. Another possibility, unexplored but consistent with higher entry, is that the merger increased the possibility that craft beers would be acquired by the large brewers.
They conclude:
Overall, the effects of beer mergers seem to be neutral. While the prices of Coors Lite, Miller Lite, and Bud Lite increased, efficiency gains meant that the average price stayed flat, and we saw new entry from craft brewers.
Or consider Facebook’s acquisition of Instagram. The paper notes that most progressives at the time didn’t think much of it, but in retrospect they treat it as “the one that got away.” That’s because most of Instagram’s growth came after Facebook bought it. The paper says, “The Instagram platform grew from roughly 24 million users and no revenue at the time of the acquisition to more than 1.2 billion users today.” And we know that Facebook’s market position is not nearly as invincible as some believe, as the past two years of poor stock performance and “metaverse” fails have demonstrated.
The fundamental problem with a lot of the doomsday predictions about mergers is that we simply don’t know how a lot of them will turn out for sure. That’s why antitrust law has developed the consumer-welfare standard, where regulators looks for specific harms based on economic evidence, to determine whether mergers should be blocked.
“Most mergers, even the ones we picked as noteworthy, are largely benign but pose a set of tradeoffs,” the paper says. “These ambiguous effects are precisely why evidence-based antitrust enforcement — along with careful remedies that can separate the wheat from the chaff — is as important today as it has ever been.”
It’s certainly better than believing that big is always bad, or letting media outrage drive enforcement actions.