A Schumpeterian View of the Great Merger Movement in American Manufacturing, 1895-1904

Abstract

This paper offers a Schumpeterian view of the Great Merger Movement in the American manufacturing industries, 1895-1904. From this perspective, the Great Merger Movement was a response to competitive pressures associated with a number of significant technological innovations which occurred at the end of the nineteenth century. Because the implementation of these innovations required large capital investments, and because the returns to the investments would have been highly uncertain if they had been made competitively, firms at turn of the nineteenth century sought to restrain competition. Since the uncertainty precluded cooperating at arms length, cooperation was internalized through horizontal consolidations. The consolidations in turn increased the size of the capital investments undertaken to implement the technological innovations. The theory is supported with historical evidence about the technological environment and industry conditions at the turn of the nineteenth century, and an econometric model is tested using data from the Twelfth and Thirteenth Censuses of Manufactures.