Do Mergers Benefit or Harm the Economy? Q&A with Bruce Blonigen

An interview of a colleague:

Do Mergers Benefit or Harm the Economy? Q&A with Bruce Blonigen: Do large mergers benefit or harm consumers? Over the years, corporations and economists have argued that mergers benefit consumers by increasing efficiency, reducing production costs, and, in turn, lowering prices.

A new paper by economists Justin Pierce of the Federal Reserve Board of Governors and Bruce Blonigen from the University of Oregon, however, shows the opposite is the case. By utilizing new techniques to isolate the effects of mergers, they find no evidence that mergers increase efficiency, but do find evidence that they increase market power, meaning they allow companies to generate higher profits by raising prices.

Blonigen and Pierce focus on the manufacturing sector, which is responsible for roughly 25 percent of M&A deals in the U.S. Relying on data covering the entire sector from 1997 through 2007, they are able to compare data from factories that were acquired during mergers to similar factories that weren’t, and to factories where an acquisition has been announced, but not yet completed.

While they find no statistically significant evidence that mergers have a positive effect on productivity or efficiency, Blonigen and Pierce do find substantial price increases following mergers, with markups ranging from 15 percent to 50 percent.

In the past two years, as issues related to antitrust and concentration came back to the forefront of American political discourse, economists and policymakers have been increasingly concerned that competition is weakening in most U.S. industries. In order to better understand the effect that mergers have on the economy, and the methods used to generate this new data, we recently interviewed Blonigen, the Philip H. Knight Professor of Social Science at the University of Oregon. ...