The Great Merger Movement

During the short ten-year period, 1895-1904, the industrial structure of the US economy underwent a profound upheaval. In industry after industry previously competing firms merged into giant consolidations that held dominant shares of the markets in which they operated. There had been a few similar mergers before, beginning with the creation of the famous Standard Oil Trust in the 1870s, but the number could be counted on one’s fingers. During the so-called Great Merger Movement, however, more than one hundred and fifty were formed, including upwards of sixty during the peak year 1899. My aim in The Great Merger Movement in American Business, 1895-1904 (published by Cambridge University Press in 1985) was to explain why so many companies suddenly disappeared into mergers and also to understand the extent to which the U.S. economy was changed by this event.

Although the growth of the US domestic market and the development of new manufacturing technologies raised the scale of enterprise, there was nothing inevitable about the Great Merger Movement. Rather, the merger wave was a product of a particular confluence of events: the development of capital-intensive, mass-production manufacturing techniques in the late nineteenth century; the extraordinaryly rapid growth that many capital-intensive industries experienced after 1887; and the deep depression that began in 1893. The result of this confluence was price warfare during the depression of the nineties that was so severe and persistent that conventional types of collusion proved incapable of controlling it. As the economy recovered at the end of the decade, battered manufacturers took advantage of the resulting rise in stock prices to try to put a stop to the competition by engineering industry-wide mergers.

For the most part these mergers were of little long-run significance for the industries in which they were formed. The attempt to raise prices stimulated the entry of new firms, and the market shares of the consolidations shrank rapidly. Only where consolidations were able to erect barriers to new competition did they maintain their dominance over the long run. Perhaps the most dramatic example was the steel industry where US Steel’s control of ore resources enabled it to lead a tight oligopoly for decades—to the detriment of the industry’s long-run survival in the face of new technological developments outside the US. The merger movement did, however, instigate important innovations in federal regulation. Although Congress had enacted the Sherman Antitrust Act in 1890 in response to the market dominance of Standard Oil and a few other large trusts, it was only after the great merger movement that the act became an important tool of federal competition policy. The final chapter of the book considers the limits of this policy, in particular its inability to counter anticompetitive actions such as US Steel’s acquisition of ore reserves.

I returned to the subject of merger waves in “Bank Mergers in Late Nineteenth-Century New England: The Contingent Nature of Structural Change,” published in the Journal of Economic History in 1991. The giant banks formed by mergers in major New England cities in the late nineteenth and early twentieth centuries were much more profitable than the smaller banks that preceded them, but the mergers were difficult to engineer because shareholders faced collective action problems and bank managers had a vested interest in the status quo. It was only when shares of bank stock accumulated in the portfolios of institutional investors (in this case, savings institutions) that shareholders were able to overcome managers’ resistance to mergers. The more general point of the article is that how a firm responds to market signals depends upon the interest of its managers as well as of its owners—and on the relative power of the two groups. In the banking case, shareholders had much to gain from consolidating their interests, but managers had much to lose and were able to block the mergers for a long time.

Related publications:

Naomi R. Lamoreaux, “Antimonopoly and State Regulation of Corporations in the Gilded Age and Progressive Era,” in Antimonopoly and American Democracy, eds. Daniel A. Crane and William J. Novak (New York: Oxford University Press, 2023), 119-167.

Edward S. Fertik and Naomi R. Lamoreaux, “La Première guerre mondiale et la restructuration des entreprises dans le monde,” La rupture? La Grande Guerre, l’Europe et le XXème siècle, eds. Pierre-Cyrille Hautcoeur, Patrick Fridenson, Florence Descamps, and Laure Quenouelle-Corre (Paris: Comité pour l’histoire économique et financière de la France, 2021) (available in English as “World War I and Restructuring of International Business,” NBER Working Paper 28224 [December 2020]).

Naomi R. Lamoreaux and Laura Phillips Sawyer, “Voting Trusts and Antitrust:  Rethinking the Role of Shareholder Litigation in Public Regulation, 1880s to 1930s,” Law and History Review 39 (August 2021), 569-600.

Naomi R. Lamoreaux, “The Problem of Bigness: From Standard Oil to Google,” Journal of Economic Perspectives 33 (Summer 2019), 94-117.

Naomi R. Lamoreaux, “Business Organization,” essay and tables in Historical Statistics of the United States: Earliest Times to the Present, eds. Susan B. Carter, et al. (Millennial edn.; New York: Cambridge University Press, 2006), Vol. 3, 477-582.

Naomi R. Lamoreaux, “Entrepreneurship, Business Organization, and Economic Concentration,” Cambridge Economic History of the United States, Volume II: The Long Nineteenth Century, eds. Robert E. Gallman and Stanley L. Engerman (New York: Cambridge University Press, 2000), 403-34.

Naomi R. Lamoreaux, “Bank Mergers in Late Nineteenth-Century New England: The Contingent Nature of Structural Change,” Journal of Economic History 51 (September 1991): 537-57.

Naomi R. Lamoreaux, The Great Merger Movement in American Business, 1895-1904 (New York: Cambridge University Press, 1985).

Naomi R. Lamoreaux, “The Competitive Behavior of Small vs. Large Firms: The Steel Industry in the Late 19th Century,” Business and Economic History 9 (1980): 28-40.