Review of Industrial Organization
12: 687–691, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Comment on “Merger Policy in the United States”
F. M. SCHERER
Abstract. This paper comments brieﬂy on a merger policy article by Dennis Mueller. It concurs with
Mueller’s judgment that X-efﬁciency consequences are of crucial relevance in developing a sound
antitrust policy toward mergers. It agrees also that ﬁrms proposing mergers overstepping structural
guidelines should be permitted an efﬁciencies defense, but it stresses the difﬁculties of making ex
ante efﬁciency predictions.
Key words: Mergers, antitrust.
The editors have asked me to write a short comment on Dennis Mueller’s return
to an arena in which he has done pioneering research. Not surprisingly, he has
focused on a central point – what might best be called, following Leibenstein, the
X-efﬁciency effects of mergers. We economists become so enamoured with the
niceties of efﬁcient resource allocation that we often lose sight of more important
things. Merger policy in the United States during the past two decades has been
concerned mainly with potential price-raising and resulting resource misallocations
which, most studies (with one by Mueller and Keith Cowling as an exception) have
shown, typically entail quite modest efﬁciency losses. The concomitant income
redistributions are much larger, but by tradition, economists shy away from the
strong value judgments required to assess them. Ignored more often than not is
the point Mueller’s literature review stresses: that mergers often lead to corporate
culture mismatches and managerial breakdowns, so that, Mueller concludes, “the
main social cost of many mergers is the damage to the efﬁciency of the ﬁrms
themselves brought about by their merging”.
I know of no empirical ﬁnding in economics more bitterly disputed than this
one. My own research with David Ravenscraft, generously cited by Mueller as “the
most ambitious of all
in terms of sample size, time span, and care in handling
the data”, yielded conclusions similar to those of Mueller. One of the biggest
disappointments of my professional career has been the total neglect many, perhaps
most, students of merger effects have accorded our study. In my retrospective view,
it was the most solid work I have carried out in 40 years of research. So conﬁdent
were Ravenscraft and I of our analysis that when the Brookings Institution asked
for the names of potential manuscript reviewers, our second nominee on a list of
six was Michael Jensen, leader of what was then the school that most strongly
opposed our ﬁndings. We were told he held the manuscript for many months but
then declined to comment, claiming a shortage of time. Yet he simultaneously