Merger Strategies as a Response to Bilateral Market Power

Relative market power is one determinant of merger behavior. An examination of 1,976 mergers in 11 manufacturing industries was undertaken to determine the relationship between merger strategy and relative power between buyers and sellers. Data on mergers were obtained from a 1972 Federal Trade Commission (FTC) list of large acquisitions. The FTC identifies 5 merger strategies: 1. horizontal, 2. vertical, 3. product extension, 4. market extension, and 5. conglomerate. A significant relationship exists between type of merger strategy and relative power. Firms with high relative power are likely to find a market solution more attractive and less costly if using quasi-integration. A weaker firm is more likely to employ vertical integration or expansion strategies. Findings suggest that strategies may be appropriately studied from a resource dependence perspective. Strategists need to consider the degree to which mergers will alleviate problems associated with relative power and resource dependency.