Chapter 2 explained that one way conglomerate mergers could create market power is by increasing multimarket contact and symmetry among a market's firms. Chapter 2 showed that multimarket contact can theoretically increase the stability of cooperative-like behavior among the rivalrous firms in any given market in which the firms meet. Further, as emphasized in Chapter 1, if the various motives for diversification rest on industry-specific properties, then the extension of diversification will tend to increase multimarket contact with the potential for increasing cooperative-like behavior (whether or not bolstering such behavior was primary among the firm's objectives). This chapter tests the hypothesis that mergers serve to increase multimarket contact and symmetry.

Overview

Section 3.2 measures the contact and symmetry created by two large conglomerate mergers just after the passage of the Celler–Kefauver Act and illustrates the change in market structure expected if a merger were designed to increase market power. Of course, the diversification and ensuing symmetry could be a response to any sort of synergy based on industry characteristics. As explained in Chapter 2, gains in potential for cooperative-like behavior from increased multimarket contact could in principle induce diversification, but as Chapter 1 has explained, there are strong “innocent” explanations for diversification that can make it impossible to show that much diversification is on balance because of such potential.