American Behemoth: The Concentration of U.S. Corporate Power
Beller, Irv
Last May the United States Supreme Court annulled a "marriage." It ordered the dissolution of a merger between the third and sixth largest supermarket chains in Los Angeles. Two weeks later,...
...The 500 largest industrial corporations—one-fourth of one per cent of all U. S. industrial corporations—received 72 per cent of all industrial profits in 1965...
...Willard Mueller, Director of the Bureau of Economics of the Federal Trade Commission, the 200 largest manufacturing companies acquired "more than 2,000 concerns with combined assets of $17.5 billion" during the period from 1950 to 1964...
...3. Corporations could be required to disclose sales, expenses and profits for each separate field of operation as well as in total—to tell "not only how much money they made but where they made it...
...Will the U. S. indeed become, as the title of an article by Hacker in The New York Times Magazine (July 3, 1966) suggests, "A Country Called Corporate America...
...However, the fact that relatively large-scale operations can yield genuine social benefits does not mean that they automatically will...
...During this period, persons other than competitors would have an opportunity to purchase the property at a fair market value before it could be merged with a competitor 2. Government agencies which enforce the anti-trust laws could be given the power to temporarily delay, subject to court appeal, mergers which they believe may be in violation of the law...
...In 1960, 29 companies were convicted of a conspiracy to fix prices on the sale of billions of dollars of electrical equipment...
...More commonly, executives in industries dominated by a few powerful firms are able to get around the law by "administering" prices...
...In 1958, the latest year for which figures are available, the four largest companies in 37 major industries accounted for more than 70 per cent of their industry's output...
...Some experts have even suggested that potential or probable anti-competitive effects be a basis for action...
...An alliance with a supplier may improve the flow of work from one stage of production to another and prevent costly delays...
...Litton, in fact, now produces some 6,000 different products...
...Numerous studies have shown that medium-sized plants are often at least as efficient and in some cases more efficient than the largest establishments in an industry...
...It advanced by 11.1 percentage points, or 24 per cent, in a period of 15 years...
...Some of the cruder abuses, such as agreements to fix prices or divide markets, were either curtailed or driven underground...
...The incentive to merge is often purely financial...
...An especially rapid increase in the price of the stock also gives a company a chance to improve its earnings per share by merging with a company whose earnings per share are higher than its own...
...ingot capacity...
...To close that loophole and to broaden the scope of the Clayton Act, Congress passed the Celler-Kefauver Act of 1950...
...As Professor Joe Bain observed in 1959: The existing anti-trust laws are considerably better than no such laws at all, but they have fallen significantly short of the task of entirely or largely suppressing monopolistic performance tendencies in the economy...
...One reason why corporations frequently have more cash than they know what to do with is that there is less pressure from stockholders for increases in dividends because of the capital gains provision...
...In 1965, the Supreme Court, concluding that Consolidated's reciprocal buying arrangement was likely to squeeze smaller onion and garlic companies out and to prevent new ones from coming into the market, ordered it to sever its ties with Gentry...
...4. The cloak of secrecy which now surrounds efforts to take over a firm through stock purchases could be lifted...
...With the economy expanding so rapidly, "one would expect," he says, "that a small absolute number of firms...
...And hardly a day has passed, even in the period following the latest Supreme Court decisions, without a news story referring to another merger...
...They not only determine the prices we pay and the quality of the products we buy...
...Vertical mergers, in which companies link up with a customer or a supplier rather than a direct competitor, have increased somewhat but still account for only a small proportion of all mergers...
...This would avoid unnecessary litigation and provide an opportunity for making arrangements which would preserve healthy competitive conditions...
...The frantic merger kick upon which American business has embarked receives few front-page headlines...
...And it could prevent unwarranted mergers from taking place at all...
...Another distinctive feature of the present merger wave is the extent to which companies are invading fields which have little or no relation to their traditional line of business...
...Among those which have vanished as separate entities in recent years are a number whose names had become household words...
...profits are nearly double the average for all food manufacturing...
...The sellers, therefore, pay no taxes on the gains they realize and this, of course, contributes immeasurably to their eagerness to merge...
...These represent genuine gains in efficiency and they could under some circumstances result in lower prices, higher wages, and improved working conditions...
...But in industries dominated by a handful of large firms, competition is weak and almost non-existent...
...As a result, in 1914 Congress made another attempt to check growth of concentration...
...Rising federal purchases can have an impact on the structure of the economy and should be constantly reviewed to ensure that efficiently operated small and medium-size firms are participating in government orders...
...And the courts have already upheld such action...
...4. In industries dominated by a few firms which are difficult to enter because of large investment requirements or other barriers, the government should provide special financial assistance to encourage the entry of new firms...
...The hope that a merger—or even talk of a merger—will in itself cause stock prices to go up offers corporate executives still another purely financial incentive to merge...
...Horizontal mergers, mergers between firms which have been producing a similar product and selling in the same market, have become less common...
...At the very least, the effect of financial penalties should not be diluted...
...In 1962, there were more than 180,000 manufacturing corporations in the United States...
...In spite of such decisions, the Sherman Act had little effect upon the concentration of economic power...
...But when CBS buys the New York Yankees and Textron, which began as a textile manufacturer, takes over the manufacturing of helicopters, chicken feed, bathroom fixtures, men's shoes, rocket engines, eye-glass frames, and hearing aids, conglomeration begins to approach the ultimate...
...The after-tax profits of one firm alone, General Motors, exceeded the 1965 tax revenues of every state in the union except California and New York...
...And, he concludes, "had they not been acquired they would most likely have continued as healthy economic enterprises capable of offering effective competition...
...However, it has aroused a gnawing concern in many others...
...manufacturing firms—owned more than half of all the land, buildings and equipment in manufacturing...
...manpower, production facilities, and a market for the goods produced by such resources can be acquired overnight in one fell swoop...
...The American Newspaper Guild, for example, has proposed that the public be given at least 90 days' notice of a contemplated merger...
...As a result, not even the stockholders of Textron know whether Textron is reaping more of its gains from helicopters than men's shoes or fountain pens...
...Also, the current merger boom involves the giants and semi-giants of American industry—not just the little concerns struggling to keep their heads above water...
...The effort to coordinate a far-flung industrial empire—embracing parking lots, undertaking establishments, and countless other unrelated activities—may even lead to inefficiency and to added costs...
...They were fined $1,787,000, and seven executives were jailed for their part in the conspiracy...
...It offers a double inducement: —An especially rapid increase in the stock price of one firm enables it to pay for another firm with fewer shares of its own stock...
...A shareholder can then sell his stocks at a profit taxable at the lower capital gains rate...
...its preferred competitive weapons are acquisitions, the receipt of...
...But the possibilities for genuine savings by highly diversified conglomerates are minimal...
...The change is taking place on the national scene as a whole and in specific regions and industries as well...
...A soaring stock market offers another inducement, totally unrelated to genuine efficiencies, to the merger-minded corporate executive...
...Faced with the impracticality of wholesale "atomization" on the one hand and the dangers of "giving up" on the other, what can the nation do about the threat of ever-increasing concentration in American industry...
...On the contrary," the Commission said, "it has...
...National Tea was not undercutting competitors' prices in the latter cities...
...Firms which may not appear large by national standards have acquired significant power in localized markets...
...There are, however, many measures which may be effective in dealing with parts of the problem...
...It then used this power to subsidize below-cost operations in 141 cities "where competition is still vigorous enough to limit its pricing power...
...As a result, they have been able to set cultural standards and shape the social and political, as well as the economic, forms of American society to a far greater extent than most Americans realize...
...Since National Tea is not a charitable institution, the Commission surmised that it would recover its losses in those 141 cities...
...Company A with large losses can be joined with Company B, a profitable firm, and the past losses of A can then be used to reduce the future tax liabilities of B. (This has resulted in some strange combinations, including the merger of a coal producer and an underwear manufacturer...
...In the Brown and Kinney merger, the record showed that the two firms together accounted for less than 2 per cent of U.S...
...However, judgments cannot rest solely on shares of the market controlled by conglomerates...
...The conglomerates may account for no greater share of production then their less powerful predecessors...
...According to Dr...
...and entry of a new competitor would be extremely difficult...
...But even if they were, they would not offset the concern aroused by the disappearance of healthy firms with the capacity to compete effectively, the growing concentration of economic power, and the frequent abuse of such power...
...And, for a number of reasons, they prefer to buy companies rather than to pay even higher dividends or invest in securities with fixed returns or build additional plants and equipment...
...The enforcement agencies must be more vigilant in rooting out anti-competitive practices in such situations...
...However, increased size via mergers or internal growth does not invariably result in genuine increases in the efficiency of production or distribution...
...retail shoe sales...
...Last May the United States Supreme Court annulled a "marriage...
...In another key case, the Supreme Court exposed the anti-competitive potential of the vertical type of merger which brings customers and their suppliers under the same management...
...Mountains of testimony before congressional committees, administrative agencies, and the nation's courts indicate that this enormous power of big business has frequently been abused...
...That also would have tipped United that we were interested...
...The breakfast cereal field provides one of the clearest examples in the food industry: Four firms have 85 per cent of the business...
...And the first American firm to use the process was McLouth Steel—a company with less than 1 per cent of U.S...
...of Hewitt-Robbins "proposed" to Litton Industries, an industrial giant and an experienced hand at mergers, at noon on Thursday, negotiated the terms on Friday...
...In 1890, Congress passed the Sherman Antitrust Act, making it illegal for a single company to monopolize trade or to conspire with others to fix prices or to divide up markets...
...More than 15,000 mergers during the past 11 years, however, have added immeasurably to its urgency...
...This rapid expansion of large corporations may seem like a great American success story to some...
...To arrest the creation of monopolies in their incipiency," the Act outlawed mergers which "may substantially lessen competition or tend to create a monopoly...
...a distinct aversion to even normal price competition...
...Nor are the largest firms the ones which invariably produce the greatest technological breakthroughs...
...There are other tax "angles" as well...
...It therefore ordered du Pont to sell its GM stock holdings...
...Two weeks later, reversing a lower court decision, it reinstated the Justice Department's challenge of the Pabst-Blatt brewing company merger...
...Conceivably, a merger which rescues a failing firm from extinction may result in greater production, more jobs, and even greater competition than might otherwise have been the case...
...It was greater even than the total revenues of 18 states combined...
...Many have become substantial stockholders through stock options or other transactions...
...The power exercised by America's largest corporations is already enormous...
...Companies like Textron and Litton Industries, FMC and Martin-Marietta have expanded so rapidly and into so many different fields that it is almost impossible to determine their principal line of business...
...In other words," said Dr...
...retail prices of cereals rose more than other retail food prices between 1954 and 1964...
...Use and Abuse of Power This massive merger movement, along with rapid internal growth, is producing a fundamental change in the American economic land scape...
...As Professor Andrew Hacker of Columbia University points out: "The decisions made in the names of these huge companies guide and govern, directly and indirectly, all of our lives...
...Senator Hart's bill, however, would close this escape route by giving `'no contest" as well as guilty pleas status as evidence in civil suits...
...competition by advertising, sales promotion and other selling efforts almost always increases...
...Used selectively and flexibly, with careful attention to the special circumstances of each case, their total contribution could be significant...
...Also, such knowledge would help the government to determine whether a company was deliberately losing money in a particular market in order to drive out competitors...
...An increase in the capital gains tax would encourage stepped-up dividend payments and compel corporations, to a greater extent than otherwise, to meet the tests of the money markets for additional funds for mergers and other purposes...
...The giants of American industry have tremendous wealth and there are few restrictions on how they spend it...
...Big firms have enormous power just because they are big...
...The Court concluded that "the acquisition had made it difficult, if not impossible, for other companies to sell substantial quantities of automotive finishes or fabrics to General Motors and therefore over the years the acquisition had resulted in a substantial lessening of competitive opportunity for such companies...
...It then proceeded to induce the food processors who are its own suppliers to buy onion and garlic products from Gentry in return for increased processor sales to Consolidated...
...Presumably competition would compel firms to produce better products at lower prices...
...Multi-Industry Giants The "urge to merge" is not a new development in American history...
...But the Clayton Act, too, had little effect upon the problem of consolidations...
...However, legal loopholes make it possible for a corporation or group of individuals to purchase controlling blocks of shares of other firms without the latter's management or stockholders knowing about it...
...Consequently, when a firm, which has well over $100 million in sales and produces hundreds of products, replaces a company with sales of a few million stemming from a single product, a fundamental change in the character of the single-product market takes place even though sales shares may be no different than before...
...In the past, such concern led to the enactment of laws which have since become landmarks in American history...
...5. An increase in capital gains tax rates could dampen some of the present ardor for mergers which have little justification in terms of efficiency...
...It can advertise more intensively, do more intensive and extensive research, buy up the inventions of others, defend its legal rights or alleged rights more thoroughly, bid higher for scarce resources, acquire the best locations and the best technicians and executives...
...However, more direct and immediate action is necessary...
...The improvement in the production of goods and services which they create are not always so obvious...
...They found that the du Pont Company's position as a supplier of finishes and fabrics to General Motors had been achieved only after it had purchased a substantial amount of GM stock, one of its directors had become a member of the GM board, and a former du Pont sales manager had been appointed as a GM vice president...
...On the other hand, corporate income distributed in the form of dividends is subject to the higher ordinary tax rates...
...Security analysts favor more detailed reporting because knowledge of the specific sources of the sales and earnings of a particular firm would help in forecasting the future prospects of that firm...
...Although conglomerates with a new kind of corporate structure have grown rapidly, financial reporting requirements have changed very little...
...But the basic problem was still with us...
...Still, the verdict of experts remained negative...
...Yet not every merger is an unmitigated evil...
...One of the reasons for the current popularity of conglomerate mergers is the knowledge that it is less likely to be challenged because it results in the substitution of one firm for another rather than in the immediate elimination of a competitor (and, therefore, an increase in concentration) as in the case of a horizontal merger...
...Mergers, particularly the horizontal and vertical types, may also result in real gains in efficiency...
...They can subsidize losses in one market with profits acquired in another market...
...Benefits for the Few In spite of occasional court decisions like the du Pont and Consolidated Foods cases, mergers have clearly enhanced corporate power to set prices, bulldoze competition, and influence other aspects of American life...
...Of these more than 400,000 separately-owned units, 100—one-fortieth of one per cent of all U.S...
...has proposed a bill which would require disclosure when more than 5 per cent of a company's outstanding shares are acquired by a person or group of persons acting together...
...For another, a merger is a way to enter a new market without increasing the number of competitors...
...I, as an economist, would be concerned even if it had not gone up one percentage point since 1947," Dr...
...No combination of measures, however, can ever be fully effective without a much greater appreciation of the dimensions of corporate power in the American economy today, the freedom with which that power is currently exercised, and the danger of allowing it to continue to reside in the hands of the officials of a few private corporations...
...This list of remedies could be extended...
...Merged organizations can ride roughshod over competition by virtue of sheer power in other ways...
...The one factor which stimulates merger activity more than any other—which produces the kind of feverish search for acquisitions we have been witnessing—is the accumulation of hoards of cash during periods of general business prosperity...
...Besides increasing overall concentration, the merger movement has produced fundamental changes within specific industries...
...It passed the Clayton Act, which prohibited mergers between competitors even before they reached monopoly proportions...
...Both mergers, the court found, had taken place in industries marked by a steady trend toward economic concentration and both threatened to "substantially Iessen competition...
...It would make it more difficult for firms to misleadingly contend, as frequently happens in collective bargaining, that although the company as a whole is making money, the division involved in the bargaining is suffering grievous losses...
...Since 1959, 11 firms in the steel industry have pleaded "no contest" to price-fixing charges...
...Yet overall economic concentration neither shrank nor remained constant...
...Mueller of the FTC declares...
...A total of 811 manufacturing and mining firms, each with assets of at least $10 million, disappeared through merger between 1948 and 1965...
...A number of other measures are available to combat monopolistic tendencies in general: 1. Existing legislation could be enforced more aggressively, with increasing attention to the growing number of conglomerate mergers...
...And modern production methods frequently require substantial investments in plant, equipment, and sales facilities...
...Yet, in spite of such decisions, an unprecedented wave of mergers continues to sweep the nation...
...It would also perhaps reduce some of the enthusiasm for mergers exhibited by executives with huge stock options...
...They do so in order to avoid a guilty verdict which could be used by their victims as evidence to collect triple damages in civil suits...
...Mueller, "the acquisition activity of the top 200 was sufficient to more than wipe out the equivalent of the second tier of 1,000 corporations in manufacturing...
...More than ever before, America has become a nation of giant enterprises with enormous power to fix prices, drive small competitors to the wall, and deeply influence the behavior and social values of others...
...They have also shown that the operation of many plants by a single company doesn't necessarily result in significant cost reductions...
...Jail sentences where justified are obviously far more effective than fines of a few thousand or even a few hundred thousand dollars for firms whose profits run into the millions...
...At least 220,000 other firms engaged primarily in manufacturing were owned either by single proprietors or by partners...
...They include Philco, Sperry, Sylvania, Glenn L. Martin, Squibb and Son, American Viscose, Pure Oil, Frito-Lay, Royal McBee, Briggs Manufacturing, Bell Aircraft, and Doehler-Jarvis...
...Another example of administered pricing reveals the power of larger conglomerates in general not only to set prices but to use the profits which they reap in one market to destroy competitors in another...
...The financial benefits for the few which mergers produce are obvious...
...And, in the Philadelphia National Bank-Girard Trust merger, the Supreme Court noted that a significant trend toward concentration in commercial banking had been occurring in the Philadelphia area, with the number of commercial banks declining from 108 in 1947 to 42 in 1963...
...3. Government procurement policies should support rather than undermine government anti-trust policies...
...advertising and sales promotion amount to 19 per cent of manufacturers' sales...
...With profits and depreciation soaring to all-time highs during the current boom, American corporations have been searching frantically for opportunities to invest their extra funds...
...If it overdoes its expenditures, it can absorb losses that would bankrupt a small rival...
...No responsible organization suggests that all mergers should be banned and the tiny enterprises of an earlier era restored...
...Significantly, very few of these large corporations were failing concerns or even losing money in the year prior to being acquired...
...But even if there were no evidence of such abuse, the fact that so much power has been lodged in so few private hands should be a matter of deep public concern...
...When the large national dairy concerns gobble up smaller dairy firms situated in areas in which the buyers have not previously operated, they are regarded as conglomerate because they have moved into new geographic market areas...
...They have an enormous influence as well, as Professor Hacker observes, over what we buy, the kind of work we do, how and where we do it, the kind of education offered to our children, the "regions of the country which will prosper" and those "which will stagnate," the social goals we set, and much more...
...Under present provisions, such gains, including gains from the sale of stock, are subject to lower tax rates than income from wages, salaries, and dividends...
...And Dun's Review (May 1966) describes how the president * Reprinted from the AFL—CIO American Federationist...
...In earlier decisions, federal courts had thwarted or dissolved what they regarded as "unholy matrimony" between du Pont and General Motors, Bethlehem and Youngstown Steel, Alcoa and Rome Cable, Continental Can and Hazel-Atlas Glass, and others as well...
...They can use their huge purchases as leverage to persuade suppliers to buy their own products...
...Clearly, there are no easy one-shot solutions...
...2. Stronger deterrents to anti-trust violations are necessary...
...Many of the disappearing firms themselves have been large and important...
...In a footnote concerning the movement of prices during the period referred to above, the Commission adds: "Retail prices per pound [of breakfast cereals] increased 45 per cent...
...These acquisitions gave National the power to exact special concessions from suppliers and to charge noncompetitive prices in several hundred cities in which it had a significant share of sales...
...The mere replacement of independent firms by conglomerate giants transforms the character of competition...
...Instead of being regulated by the forces of the marketplace, the dominant firms in such industries regulate the marketplace...
...To prevent take-overs from occurring in virtual secrecy, Senator Harrison Williams (D-N.J...
...Merger waves occurred in 1899, in 1920, and again from 1926 to 1929...
...This appears to be especially true of the giant conglomerates producing a multitude of totally unrelated products...
...Or it might even establish a government-owned corporation like the TVA to provide a yardstick by which to judge and improve the performance of other firms in the industry...
...A serious loophole made it virtually useless in coping with the great merger wave of the twenties...
...These, however, were only the better-known among the departed...
...The American standard of living depends upon modern production methods...
...If this rate continues, America will be faced with a condition of super-concentration within little more than a decade...
...To this end, Senator Hart has introduced a proposal to make it easier to collect damages from anti-trust violators...
...As the National Commission on Food Marketing pointed out in advocating such authority, assets might otherwise "become intermingled before the government can act and, if divestiture is ordered, `unscrambling' is difficult and expensive...
...Most industry leaders make money almost automatically year-in and year-out...
...On March 6 of this year, the Federal Trade Commission forbade the National Tea Company, the fifth largest food chain in the U. S., from acquiring any additional food retailing firms during the next 10 years without FTC's approval...
...Yet, its implications are profound...
...Some conglomerates are more conglomerate than others...
...Since these statistics exclude bank, utility, and transportation industry mergers as well as hundreds of smaller mergers, the actual number in 1965 alone undoubtedly exceeded 2,000...
...And such profits have a special attraction because they are subject only to the low capital gains tax rather than the ordinary income tax...
...Horizontal or vertical combinations may in some cases achieve real savings by producing larger quantities of a particular product or by improving the flow of work from one stage to another...
...Under this Act, the Standard Oil and American Tobacco trusts were broken up and the merger of the Northern Pacific and Great Northern Railroad was blocked...
...Under present law, violators frequently prefer to plead "no contest" in criminal anti-trust cases...
...They do so through a system of price leadership under which one of the larger producers in the industry determines the price and the others follow more or less automatically (the smaller ones in particular feeling they have nothing to gain and much to lose by not "playing the game") . After an exhaustive study, the National Commission on Food Marketing described the pricing process and its results in the food industry as follows: When a few large firms dominate a field, they frequently forbear from competing actively by price...
...The number recorded by the Federal Trade Commission has climbed spectacularly from a yearly average of 1,162 in the 1955-1959 period to 1,893 in 1965...
...In the view of many who have studied the matter carefully, the following measures could be particularly helpful in dealing with the problems arising from mergers: 1. The parties to proposed mergers could be required to notify the government in advance...
...In fact, says Dr...
...Actually, the Securities and Exchange Commission is now in the process of formulating requirements for information by division and in some cases by product...
...One of the most important innovations in petroleum refining— catalytic cracking—was developed by Sun Oil, one of the smaller firms in the refining industry...
...Coping with Super-Concentration The problem of economic concentration in America is not new...
...It ordered the dissolution of a merger between the third and sixth largest supermarket chains in Los Angeles...
...Or it could result in the establishment of a special board which would hold hearings and publish findings and recommendations concerning intended price increases by dominant firms in key industries before such increases actually took effect...
...But, whether it did or not, the character of many industries has changed substantially...
...It seemed clear to some people at least that unless such arm-twisting trade relations were broken up, the U.S...
...One of the most revolutionary technological changes in steelmaking, the basic oxygen process, a process which produces steel six to eight times faster than the open-hearth method, was developed by a little Austrian firm less than one-third the size of a single plant of the U.S...
...The bill would thereby provide safeguards for investors and workers, particularly against what Senator Williams calls "white-collar pirates" whose subsequent mismanagement can endanger jobs as well as stock values...
...If this is true now, what will the future be like if the merger movement continues and an even greater portion of the American economy becomes concentrated in the hands of a small number of extremely powerful enterprises...
...5. Determined action along the lines suggested thus far can do much in the longer run to deal with the kind of pricing power which has imposed a heavy burden during the past years upon families with limited incomes and inhibited the government from taking more vigorous steps toward full employment...
...Such action could take the form of direct Congressional investigations of the price-profit-investment policies of dominant firms in important industries...
...This amended the 1914 measure so that it clearly applied not only to mergers between competitors but to all mergers "which might substantially lessen competition or tend to create a monopoly"—including the vertical and conglomerate variety...
...economy could end up as a vast cartel system dominated by giant conglomerates...
...Also, when the owners of an acquired company are paid in stock rather than in cash, the law regards the transaction as an exchange of assets...
...A general increase in such industry concentration ratios may have occurred after 1958 when the merger boom began to pick up additional steam...
...Most of the really significant structural auto changes in recent years have been developed abroad rather than by the giants of the American automobile industry...
...Yet, in each of 13 cities throughout the nation, they sold more than 50 per cent of women's or children's shoes...
...More recently, W. T. Grimm and Company, a private consulting firm which keeps tab on merger developments, reported a 25 per cent jump in the number of corporate mergers between the first half of 1965 and the first six months of 1966...
...Steel Corporation...
...Some, in fact, have genuine social value...
...However, none of the previous merger booms have been as prolonged as the current wave, now entering its twelfth year and still showing a vigor which belies its age...
...For them, the rising stock prices resulting from mergers spell rising profits...
...As a result, as Professor Corwin Edwards of the University of Oregon points out: A big firm can outbid, outspend and outlose a small firm...
...By 1977, the 100 largest manufacturing corporations will control more than two-thirds of the nation's net manufacturing assets...
...In 1951, the Consolidated Foods Corporation, a major food wholesaler, acquired Gentry, one of the two largest domestic manufacturers of dehydrated onions and garlic...
...price concessions and promotional allowances from suppliers, and massive store-building and advertising campaigns...
...And it was only after foreign manufacturers and smaller domestic firms had demonstrated that there was a sizable market for them that the largest auto producers began to turn out compact cars in the United States...
...It frequently has little or nothing to do with the introduction of new or improved products or more efficient methods of production...
...The fact that overall concentration rose at all during this period indicates a fundamental change in the American economy...
...One investment expert, an officer of the Dreyfus Fund, observes: Such disclosures may contribute to a much closer examination of new acquisitions, especially in unrelated fields, and may remove some of the incentive to grow for growth's sake without proper regard for the efficiency of existing operations and the stockholders' equity in the company...
...In the process, thousands of jobs have been merged out of existence as well—often with little or no provision for cushioning the impact upon those who have been displaced...
...And it concluded "that this will be done not by efficiencies and economies in food retailing, but by a steady enlargement of its market shares in those cities until it acquires the same kind of pricing power it now enjoys in .. . other cities where it is already the dominant seller...
...Their share of such assets, according to figures compiled by the staff of the Senate Antitrust and Monopoly Subcommittee, had risen from 45.8 per cent in 1947 to 56.9 per cent in 1962...
...And they can refuse to sell one product which may be difficult to obtain unless buyers are willing to accept other products as well...
...Letter to Senator Philip A. Hart, D-Mich., May 26, 1965...
...Yet they have a far greater advantage than their pedecessors had over the more specialized firms which continue to operate in the industry into which they have merged...
...This should be completed and put into effect without unnecessary delay...
...Executives known to be interested in mergers "often get half a dozen calls or letters a day from persons peddling companies," reports Newsweek (April 25, 1966...
...and the market power inescapably at the disposal of such firms may be used to impose onerous terms upon suppliers or customers...
...When Continental Can merged with Hazel-Atlas Glass, it became a conglomerate by taking on the production of another type of container...
...A ruling by the Internal Revenue Service permitting such a deduction resulted in a $200 million reduction of the penalty imposed on the 29 electrical equipment manufacturers convicted of conspiracies to fix prices...
...Mergers also have resulted in fundamental changes within specific regions...
...The Pennzoil Company, for example, spent almost one year secretly buying up at least 275,000 shares of United Gas Corporation before openly indicating its desire to take over that company...
...would have shrunk relatively...
...However, the power amassed by America's industrial giants frequently enables them to achieve their aims without resorting to grossly illegal and even criminal actions like price-fixing...
...Buying in larger quantities may provide significant savings in the packaging and handling of materials...
...For the most part, corporations are required only to divulge data concerning their total activities...
...while the Bureau of Labor Statistics' index of retail food prices rose 12 per cent...
...One insider observed, according to Business Week (February 26, 1966): "We could have made a merger proposal to United but we certainly would have been turned down...
...Company hunting is my night-time and weekend sport," says the head of a rapidly growing communications media firm...
...Another proposal by Senator Hart would deny violators the right to deduct treble damage payments from their taxable income as though they were ordinary business expenses...
...No one really believes that twentieth-century America can be transformed into a model of eighteenth-century economic theory—a model in which no firm is large enough to exercise any significant power over prices or the volume of production...
...Corporate income which is invested can drive the price of stocks up...
...Money is power and big firms have huge sums of money at their disposal...
...The Commission found that, during the period from 1951 to 1958, National had acquired 24 concerns having "some 485 retail grocery stores in 188 cities in 16 states...
...Full disclosure is ordinarily required when one firm seeks to obtain control of another through an exchange of stock...
...For one, the merger route provides a short cut to more rapid growth and higher profits...
...In both instances, however, the merged firm was either producing the same product as before the merger or one that was closely related...
...The conglomerates, in particular, because of their position in so many different markets, are free of the pressures of any single market in which they operate...
...Mueller, "a substantial percentage were very profitable enterprises...
...Firms producing the same or related products may be able to use machines and manpower more effectively and more fully when they bring their operations under one management...
...That $17.5 billion exceeded the value of the assets held by all manufacturing corporations between the 1,000 largest and the 2,000 largest in the fourth quarter of 1962...
...and had them approved at a board meeting on the following Saturday morning...
...Instead, conglomerate mergers— mergers between companies operating in different markets and without any previous buyer-seller relationship—have become the great fad...
Vol. 14 • November 1967 • No. 6
