The Great Merger Movement in American Business, 1895-1904

"The Great Merger Movement in American Business" is a fabulous monograph. It combines business history, legal history and oligopoly models to explain the sudden rise of industrial concentration in the 1890s. The basic idea is that firms with high fixed costs responded to the depression of 1893 by plunging into ruinous price wars, as they fought for market share in order to operate at full capacity. Seeing the suicidal implications of this strategy, the firms changed course and bought up or merged with their rivals, leading to industries dominated by one or two huge companies. The book is short, clearly written, and uses simple models to great effect. Dispensing with neo-classical claptrap, the author doesn't assume that the merger movement of the 1890s was inevitable or dictated by considerations of efficiency. On the contrary, she finds that older industries with stable producer/seller relationships avoided merger mania, having already worked out arrangements to minimize price competition. She also recognizes that big firms can sometimes erect barriers to entry. I highly recommend this book. Anyone interested in American economic history will like it a lot.