Mergers in Declining Industry

Abstract

Declining industries are characterized by prolonged declines in demand and excess capacity. Mergers of firms in declining industries often lead to rationalization of capacity, which makes production more efficient and makes firms better off. This benefit, however, may not be merger-specific, since capacity could be rationalized via firm exit. But the exit process itself may lead to inefficiencies, such as delays and inefficient ordering of exit (i.e., low-cost capital exits before high cost capital), which could warrant a merger. Increased market power of the combined firm, however, may lead to higher prices for consumers, which would be anticompetitive. This article considers the procompetitive efficiencies and anticompetitive consequences of mergers in declining industries and will discuss how the Agencies may evaluate these mergers.