How weak regulation is helping to build corporate kingdoms in America

"IF WE will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life." So said Senator John Sherman, who proposed the first American law against monopolies in 1890. Merging firms, however, argue that they will rule benevolently and lower prices. They claim that savings made from combining their efforts will be passed on to customers. The problem for regulators is that it is difficult to tell how much firms are fibbing. Prices can change for many reasons—higher costs, tariff changes, consumers’ tastes—and a price rise after a merger might not directly be the result of price fixing by a newly crowned monopoly.

A new paper published earlier this summer in the RAND Journal of Economics tests whether regulators made the right call in the American beer industry. The paper looks at the 2008 merger of Miller and Coors, the second and third largest brewers at the time in the United States. Miller and Coors argued that a merger would combine their distribution networks, thus reducing transportation costs. Regulators worried that the merger would...Continue reading

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