The Great Merger Movement in American Business, 1895-1904

Naomi Lamoreaux examines the wave of consolidations that transformed American industry in the decade around 1900, when more than eighteen hundred firms disappeared into roughly a hundred and fifty combinations.

Her explanation runs against the standard account, which attributes the wave to the pursuit of monopoly power or to a permissive legal environment. Lamoreaux argues that the combinations were a response to a specific competitive problem in newly capital-intensive industries. Firms that had invested heavily in fixed plant faced high fixed and low marginal costs, which meant that during downturns each firm had an incentive to cut prices to cover variable costs, producing price wars that destroyed everyone's returns. Cartels and pools were tried and failed because each member had an incentive to defect and courts would not enforce the agreements. Merger was the remaining option.

She supports this with evidence on which industries consolidated: the wave concentrated in industries that were young, capital-intensive and had recently expanded capacity, exactly the profile her explanation predicts. She also shows that the combinations largely failed to sustain monopoly profits, because entry occurred and because the merged firms did not achieve the operating efficiencies their promoters claimed. The book is quantitative economic history and remains the standard treatment of the episode. Her argument that intense competition rather than its absence caused consolidation is directly applicable to any capital-intensive industry.