Review of Industrial Organization (2006) 28:327–341 © Springer 2006
A New Retrospective on Mergers
F. M. SCHERER
Harvard University Emeritus, 601 Rockbourne Mills Court, Wallingford, PA 19086, U.S.A.
Abstract. This paper is based on my keynote address given at the 2006 International
Industrial Organization Conference in Boston, April 8, 2006. I survey long-run trends in
mergers, review the debate over the economic success of mergers generally, and examine
the changing treatment that business schools have accorded mergers over the past ﬁve
decades. A ﬁnal section is a time series analysis of links at the U.S. macroeconomic level
between changes in merger activity and labor productivity growth.
Key words: business schools, efﬁciency, mergers, productivity.
They say a perpetrator always returns to the scene of his crime. I have
returned more than once – in this case, to the question of mergers and
their effect on X-efﬁciency. Thirty-six years after my ﬁrst published strug-
gle with the issue, I have three itches that still need scratching. First, dur-
ing the past year merger activity has revived strongly and bids fair to
reach the highest levels ever recorded. It is time to take a new look at
the trends. Second, the debate over the success of mergers continues. And
third, I have become intrigued about how mergers and their consequences
are being treated in business schools. This paper addresses all three themes.
II. Recent Trends
After a brief slump connected with the 2001–2002 stock market crash,
merger activity appears to be resuming. Figure 1 extends a statistical
series begun in the ﬁrst (1970) edition of my industrial organization text-
book. It is a series of splices, beginning with Ralph Nelson’s series for
1895–1920 and then extending the series, expressed in billions of constant
1972 dollars, with adjustments for Tobin’s Q and data source coverage.
For the most detailed description of splicing methodology, see Scherer (1980, p. 120).
Data following discontinuation of the Federal Trade Commission large manufacturing and