Heinz – Beech Nut Merger

Heinz – Beech Nut Merger

The word “merger” is very common term that everyone in America has to deal with in some aspect of life. Banks, oil companies, car manufacturers, computer makers…the list goes on for ever, and the mergers of these companies have a direct effect on our daily life. For decades the US government and the court systems have tried to regulate how mergers can and cannot happen and why. The reason(s) as to why a merger is allowed or not has varied over the years, but one major concept has remained the same: too many mergers within a particular market can reduce competition and create a monopoly (or a near monopoly condition). Merging firms often state that a merger could help them reduce costs and to develop better products. They claim this would clearly be a benefit to the consumers of their product(s).

The 1960’s and 70’s were considered the earlier era of merger law by economists. During this time frame he courts and governments were more concerned with the NON-economic aspects of mergers: reducing market concentration, protecting small business, consumers rights…etc. Since 1979 those concerns have faded and the court system is now more concerned with economic concerns. The difference between right and wrong has been blurred recently, which allows judges to consider ALL factors in a case (economic and non), and be flexible when looking at specific cases. The merger guidelines were revised in 1997 to allow efficiencies to be used as a defense. Clearly, efficiencies are a key part of the defense, and are looked at very closely by the courts, especially in cases with a high market concentration. The Merger Guidelines state: “Efficiencies almost never justify a merger to monopoly or near monopoly.” (Kwoka and White, 2004)

Posner and Bork said that the antitrust laws and economic efficiency helped only the consumers, not the firms. They encouraged the courts to look at efficiencies in antitrust analysis generally. They claimed that an efficiency defense could possibly make investigating a merger intractable in litigation. The term “intractable” as defined by Wikipedia are “problems that are solvable in theory, but cannot be solved in practice”. This means that what Posner and Bork are saying is that while in the litigation stage of a trial, the efficiency defense could theoretically come up with a solution that appears and sounds good, but in real life business situations (practice) would not work.