Conglomerate Performance Over the Economic Cycle

THE economic efficiency aspects of conglomerate mergers have taken on a degree of importance which is not attached to the economic efficiency aspects of non-conglomerate mergers. As the Monopolies Commission noted in its General Observations on Mergers 9, this is because a pure conglomerate merger, which by definition does not have any immediately observable effect on industry structure, cannot be assessed with respect to its effects on competitive markets in the same way as other types of merger can. There have been several attempts to assess the long term effects of conglomerate entry on industry structure, notably by Utton 15 and Kelly 5 in the UK, and by Goldberg 4, Rhodes 12, and Berry 1 in the USA, but, as these authors would be the first to admit, their conclusions are both tenuous, given the paucity of the data with which they have had to work, and somewhat contradictory between studies. However, all is not lost, for it is possible to assess a pure conglomerate merger with respect to its expected effects on the efficiency with which resources will be used. A number of studies have looked at the comparative performance of conglomerate and non-conglomerate concerns in an attempt to establish just what the effects of conglomeration are on enterprise performance and, by extension, economic efficiency. In the UK, studies by Utton 14, Econtel 3 and Kumps 6 have all compared the performance of conglomerate and non-conglomerate concerns over a given time period. While Utton found no difference between the performance of two such groups, both Econtel and Kumps did find significant evidence that conglomerates outperformed non-conglomerates. So in the UK the balance of the evidence to date would seem to indicate that conglomerates perform at least as well, if not a little better, than non-conglomerate concerns. In the USA too, a number of studies have come out in favour of conglomerate firms. Most important of these studies are those by Weston and Mansinghka 16 and Weston, Smith and Shrieves 117]. But as Mueller 10 has argued, these analyses may be flawed given that they focus on the performance of conglomerate firms during the boom period of the 1960s. Mueller believes that the real test of conglomerate performance is not how