NBER WORKING PAPER SERIES THE PRICE EFFECTS OF A LARGE MERGER OF MANUFACTURERS: A CASE STUDY OF MAYTAG-WHIRLPOOL

Many experts speculate that U.S. antitrust policy towards horizontal mergers has been too lenient. We estimate the price effects of Whirlpool’s acquisition of Maytag to provide new evidence on this debate. We compare price changes in appliance markets most affected by the merger to markets where concentration changed much less or not at all. We estimate price increases for dishwashers and relatively large price increases for clothes dryers, but no price effects for refrigerators or clothes washers. The combined firm’s market share fell across all four affected categories and the number of distinct appliance products fell. Orley C. Ashenfelter Industrial Relations Section Firestone Library Princeton University Princeton, NJ 08544 and NBER c6789@princeton.edu Daniel S. Hosken Federal Trade Commission 600 Pennsylvania Avenue, NW Washington, DC 20580 dhosken@ftc.gov Matthew C. Weinberg Dalton Hall Bryn Mawr College Bryn Mawr, PA 19010 L ADDRESS HERE mweinberg@brynmawr.edu The Price Effects of a Large Merger of Manufacturers: A Case Study of Maytag-Whirlpool Orley C. Ashenfelter, Daniel S. Hosken, and Matthew C. Weinberg Abstract Many experts speculate that U.S. antitrust policy towards horizontal mergers has been too lenient. We estimate the price effects of Whirlpool’s acquisition of Maytag to provide new evidence on this debate. We compare price changes in appliance markets most affected by the merger to markets where concentration changed much less or not at all. We estimate price increases for dishwashers and relatively large price increases for clothes dryers, but no price effects for refrigerators or clothes washers. The combined firm’s market share fell across all four affected categories and the number of distinct appliance products fell.Many experts speculate that U.S. antitrust policy towards horizontal mergers has been too lenient. We estimate the price effects of Whirlpool’s acquisition of Maytag to provide new evidence on this debate. We compare price changes in appliance markets most affected by the merger to markets where concentration changed much less or not at all. We estimate price increases for dishwashers and relatively large price increases for clothes dryers, but no price effects for refrigerators or clothes washers. The combined firm’s market share fell across all four affected categories and the number of distinct appliance products fell. Each year thousands of mergers are proposed to the U.S. Federal Trade Commission and U.S. Department of Justice. After filing, the merging firms must wait while the antitrust authority attempts to identify and block mergers that would increase consumer prices. The challenge of identifying those mergers that would increase prices while not interfering with those that would not is enormous. Enforcement decisions must be made quickly and often with imperfect information on consumer demand, the ease of entry, and the possibility of merger induced efficiencies. Unsurprisingly, whether antitrust enforcement has been too lenient or too strict is the subject of much debate (Crandall and Winston (2003), Baker (2003)). A straightforward way to inform this debate is to evaluate whether approved mergers actually increased price. Without evidence of this sort, it is impossible to know whether antitrust policy is achieving the objective of protecting consumer surplus. ∗The opinions expressed here are those of the authors and not necessarily those of the Federal Trade Commission or any of its Commissioners. We thank Mike Mazzeo, Paul Pautler, Chuck Romeo, Carl Shapiro, and Mike Vita for comments. Ashenfelter: c6789@princeton.edu, Hosken: dhosken@ftc.gov, Weinberg: mweinberg@brynmawr.edu