Lecture_08

Lecture_08 - Lecture 8: The Rise of Big Business and the...

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Lecture 8: The Rise of Big Business and the Great Merger Movement • From 1895-1905, US industry underwent a major reorganization. Small firms consolidated into giants with large market share. • What forces led firms to merge during this period? • What were the short-term and long-run impacts of these consolidations on the economy? Were large firms simply more efficient, or were the mergers formed to exercise monopoly control? The Great Merger Movement: 1895-1910 0 500 1000 1500 2000 2500 1890 1895 1900 1905 1910 1915 Capitalization ($, 000,000) Firm disappearances merger capitalizations firm disapp. The Great Merger Movement 1882: Standard Oil Trust (first consolidation) (in current dollars)
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Comparing the GMM to modern consolidations 1998- 2000 Value of acquired firms; 1972 $ (billions) 1. Vodafone and Mannesmann: 183 b. 2. AOL and Time Warner: 75b 4. Exxon and Mobil: 77b 106b in $2000 Rise of big business: Long-run • Technological change : Increase in efficient plant size: From non-mechanized factories where economies of scale maxed out at 6 workers to large, modern industries like Ford Motor Co. • Reductions in transport costs : Feasible to produce in one location and ship to market
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Rise of big business: Short-run x Investments in new capital stocks during the late 1880s and early 1890s, financed through bond issues x Followed by the Panic of 1893; high interest payments on bonds (fixed cost); desire to ‘run full’ x Output high even as demand falls; prices fall; desire to
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This note was uploaded on 04/13/2009 for the course ECON 183 taught by Professor Boustan during the Winter '09 term at UCLA.

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Lecture_08 - Lecture 8: The Rise of Big Business and the...

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