Cowling's Market Structure and Corporate Behavior

* This is a collection of seven essays on assorted topics in industrial organization.1 Most are reports on research in process. The theoretical analysis is often impressive. Most of the papers end with empirical studies that are preliminary and, in a number of cases, unconvincing. In the first piece, Hindley reviews the literature on the causes and effects of mergers. He emphasizes the work of Gort and Dennis Mueller and merely bows to traditional notions about mergers for monopoly or economies of scale and ignores short-run speculative motives. He emphasizes mergers to transfer capital or specialized skills or to increase growth or head off takeovers where managements are growth-maximizers. He notes previous evidence that merging firms are less profitable than either their component predecessors or nonmerging firms and finds it unconvincing because merger may be an attempt to remedy an even poorer prospective performance. He cites his own evidence that a large number of poor performance, widely held firms survive in spite of widespread mergers. This, he feels, is conclusive evidence that the threat of takeover is insufficient to make managers into present value maximizers. It is also inconsistent with growth maximization since a growth maximizer would put a higher value on any firm, efficient or not, than capital markets do.