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.