From: Robert J. Bradbury (bradbury@www.aeiveos.com)
Date: Fri Oct 01 1999 - 12:16:52 MDT
On Thu, 30 Sep 1999, Robin Hanson wrote:
> Here is a nice example of such a test: do they
> support merging Intel and Microsoft?
>
> Intel and Microsoft both seem to have strong near-
> monopoly market power, and their products are clearly
> strong complements. So the standard industrial
> organization analysis would suggest that merging them
> would produce lower prices *and* more profits for the
> merged firm.
Robin, I think the problem with people not understanding
this is you may be speaking at an economics level most
people don't have. I've got a freshman college economics
level with a fair amount of corporate finance thrown in.
I would guess "industrial organization analysis" is a 300-400
level course. So the only way I can interpret this statement
is that if you mean that merging the two corporations makes
a more efficient corporation by reducing management overhead
(perhaps 10-20% of a corporate budget). I think this works
(with standard merger analysis) when the industries are
similar enough that you can cut managers (say in banking).
However, with Intel and Microsoft you are merging an
Electrical Engineering R&D culture with a software R&D
culture. While they are close to each other, I'm not
sure they are close enough to give you the efficiencies
you seem to suggest.
I think the big conglomerates of the '70s (W.R. Grace comes to
mind) demonstrated that it is difficult to manage diverse business
subsidiaries and provide decent returns. Now in the '90's things seem
to have shifted differently. GE seems to be doing quite well with
acquisitions and does have a diverse set of businesses. However,
they seem to be growing rapidly in the developing parts of the world.
It seems the Microsoft & Intel already have very good penetration in
those rapid growth regions so they don't gain much by merging.
In short, I think you need to explain the case better so
people can see what you see.
Robert
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