A Schumpeterian view of the Great Merger Movement in American manufacturing

Abstract

This paper offers a Schumpeterian view of the Great Merger Movement in the American manufacturing industries, which occurred from 1895 to 1904. From this perspective, the Great Merger Movement was a response to competitive pressures associated with a number of significant technological innovations which occurred at the end of the nineteenth century. Because the implementation of these innovations required large capital investments, and because the returns to the investments would have been highly uncertain if they had been made competitively, firms at the turn of the twentieth century sought to restrain competition. Since the uncertainty precluded cooperating at arms-length, cooperation was internalized through horizontal consolidations. The consolidations in turn increased the size of the capital investments undertaken to implement the technological innovations. The theory is supported with historical evidence about the technological environment and industrial conditions at the turn of the twentieth century, and an econometric model is tested using data from the Twelfth and Thirteenth Censuses of Manufactures.Great Merger Movement, Technological change, Market power, Schumpeterian hypothesis, Antitrust

Do technological booms matter? New evidence on the relationship between firm size and innovativeness

“…The author argues that firms must merge to be able to realize large capital investments because such investments are too risky and expensive for smaller firms. Examining the great merger movement in the American manufacturing sector (1895)(1896)(1897)(1898)(1899)(1900)(1901)(1902)(1903)(1904), Smythe (2010) finds historical evidence that contributes to our understanding of firms' incentive to merge and the role innovations can play in this context.…”