One of the most controversial merger policy decisions during the Bush administration was the DOJ’s failure to bring a complaint against the Whirlpool/Maytag merger. Indeed, the decision was even criticized by Carl Shapiro, the economic expert retained by the DOJ on the case. Jonathan Baker and Carl Shapiro summarize this conclusion as follows: “The March 2006 decision by the DOJ not to challenge Whirlpool’s acquisition of Maytag was a highly visible instance of underenforcement.” Orley Ashenfelter, Daniel Hosken and Matthew Weinberg have now posted a working paper that estimates the price effects of the merger. Using scanner data, the authors compare the prices of Whirlpool and Maytag appliances to price changes in the appliance markets most affected by the merger to other markets less or not affected. They find large significant price increases for clothes dryers and dishwashers, but not for refrigerators and washing machine.
Was the Whirlpool/Maytag Merger Anticompetitive After All?
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The AAG who decided not to challenge Whirlpool/Maytag gave a speech two years later in which he concluded that the post-merger developments were consistent with his view at the time that the merger did not harm competition (http://www.justice.gov/atr/public/speeches/234537.htm). In conducting his informal merger retrospective analysis, he only had access to BLS price data, which are fine for an initial screen but would not be used in preference to transactions price data in an investigation because sometimes they don’t actually measure anything like what you would want them to measure. Also, his informal methodology was limited in its ability to control for other influences on prices. That is, in order to isolate the effect of the change industry structure (namely the merger) on prices, it is necessary to control for other major industry changes, two of which occurred between the date the merger was allowed to proceed and the date of the speech: the demand decline from the housing bust (likely to make prices fall) and input price increases (likely to make prices rise). The speech discusses input prices, but it does not grapple with the consequences of the demand shift. I view the Ashenfelter, Hosken & Weinberg paper as suggesting that the use of better data and the ability to control more fully for influences other than the merger on prices changes the conclusion from what the BLS data appeared to suggest two years after the transaction.
20 years ago, if you walked into an appliance store, it was all domestic brands. Maytag, Whirlpool, etc. If you repeat the trip today, there are brands from all over the world such as Bosch, LG, and Samsung. If anything, there is more competition at every level.
I am immediately suspicious of the statistical work that differentiates a pricing impact difference between clothes washers and dryers since both are packaged and sold largely on a joint goods basis (no matter how the scan data come out.)
But who is to say that the prices were not too low before the merger and that the merger was not an efficient device for correcting the mispricing. Is every price increase a result of monopolization? Should we more heavily emphasize effects like price, that we can easily measure, than we do those dimensions not so amenable to metrics?