The Social Costs of Mergers: Restoring Local Control as a Factor in Merger Policy

Abstract

As the pace of large corporate mergers has increased recently, so too have the reports of concerns by civic leaders about the negative effects of mergers on communities losing corporate headquarters, including a loss of civic leadership, philanthropy, jobs, and investment. Such adverse social consequences of mergers are not presently relevant to antitrust analysis, which dismisses so-called noneconomic values in favor of narrow efficiency or consumer welfare objectives. Yet it is widely accepted, although generally ignored, that preserving local control of business, and other supposedly noneconomic values, were the predominant concern of Congress in restricting mergers under the federal antitrust laws.

In a challenge to current antitrust discourse, this Article maintains that the loss of local control should be restored as a factor in merger policy. A review of the legislative history of the 1950 Celler-Kefauver amendments to section 7 of the Clayton Act shows that Congress sought to preserve local control of business because it believed that distantly controlled firms were, in today's parlance, less socially responsible than local firms. The Article demonstrates that Congress's historic concern is borne out to a significant extent by modern social science literature. Empirical studies indicate that communities often (but not invariably) face significant social costs from mergers when a major corporate headquarters is lost and control of a firm is transferred from locally based managers to distant or absentee managers, a process referred to as delocalization. Moreover, the loss of corporate headquarters may impair overall social welfare and efficiency, thus suggesting that restoring local control as a consideration in merger analysis is consistent with modern welfare economics. The Article develops a doctrinal argument for considering the loss of local control as a noncompetitive factor that would militate against mergers with uncertain competitive effects, outlines various alternatives for incorporating this factor into antitrust merger review, and also offers a proposal for considering the loss of local control as an adverse factor in the analysis of bank mergers under federal banking law.

Keywords: mergers, antitrust, banks, banking, local control, Cellar-Kefauver, corporate philanthropy, efficiency, civic welfare, corporate headquarters, corporate social responsibility, social networks, social norms, delocalization, trust

JEL Classification: G34, K21, K22, L31, P60, R58