ticular problem. Thus, while General Motors is credited in the 1963-64 Fortune Plant and Product Directory with the production of 98 different 5-digit product classes falling into eleven 2-digit industry groups, its motor vehicle production comprises so large a proportion of its output that the company clearly belongs in the transportation equipment major group (SIC 37) and can reasonably be classified in the motor vehicles and equipment industry (3717). In contrast are companies, such as National Distillers & Chemical Corp. which produces liquors, copper and brass products, plastics, film and fertilizers, or FMC Corp. which has less than half its sales in a variety of chemical products and about two-fifths in specialized machinery for a range of industries. In such cases any attempt to assign the company to a single four-digit industry would be meaningless. Hence the 100 acquiring companies were arrayed only by the broad 2-digit industry groups.1

Insofar as most of the acquired companies are concerned, the four-digit classification would appear to provide a reasonably adequate characterization of the major part of the company's operations. The acquisition of a few companies of considerable size and diversification, such as Olin Industries, Sylvania Electric Products, and Philco, requires a somewhat arbitrary industry assignment, which was made on the basis of the best available published information concerning the company's most important line of products. The principal source used in assigning the acquired companies to four-digit industries was the Dun & Bradstreet Reference Books. Since the volumes are published quarterly, it was possible to classify the companies for the quarter immediately preceding the date of merger. For 66 acquisitions no information was available from Moody's and other sources to indicate the size of the acquired company. However, for each of these cases the Dun & Bradstreet manuals indicated that the company fell into its "over $1 million" clasification."

Several standards were applied to limit the compilation to companies and industries in which there was significant merger activity. Each of the company's acquisitions had to meet three tests: (1) during the period 1950-63, the company must have made two or more acquisitions of manufacturing assets; (2) each merger had to involve $1 million or more in assets; and (3) the total of acquired assets had to amount to more than $15 million. Only those industries were included where: (1) acquiring companies among the 100 most active made at least 2 significant acquisitions therein; and (2) the industry had shipments of $100 million or more in 1958.

DUPLICATION OF ASSETS THROUGH SERIES MERGERS

A potential source of duplication in the asset totals was the acquisition of 1 firm by another which in turn was purchased by 1 of the 100 "most active" acquirers. For example, Philco purchased Dexter Co. for about $2 million in 1954 and the Bendix appliance line (from Avco, which had previously acquired the Bendix Co.) for $20 million in 1956. Since each of these acquisitions meets the standards of significance in its own right, they are included in the numerical count as three separate mergers-Dexter, Bendix, and Philco. In the asset values, however, there has been no double-counting. Philco's purchase price of $231.9 million has been recorded as $209.9 million; $20 million for Bendix and $2 million for Dexter have been separately recorded. In other words, where an acquired company is known to have made a prior acquisition which, itself, meets all the tests for inclusion, both acquisitions are counted among the 611 recorded mergers. When the acquiring company is, itself, subsequently acquired, its

1 In cases where SEC's classification departed from the SIC, the SEC codes were adjusted to follow SIC descriptions. In all cases the two-digit SIC's were stated on the "old" basis to conform to four-digit acquired company codes.

The four-digit SIC industry classes were all assigned on the "old" basis for purposes both of internal consistency and of showing shipments and concentration data. From table 2, p. 10 ff, of the subcommittee report, "Concentration Ratios in Manufacturing Industry, 1958," value of shipments was shown on this chart for each industry and fourcompany concentration ratios for 1958 were listed in all cases where they were available, as well as changes in concentration from 1947-58.

Dun & Bradstreet attempts to report these SIC industry codes on the basis of the SIC classifications current at the time of publication. Following the 1957 major revision in SIC classification, D. & B. changed its coding in several steps, not completing the conversion until 1960. For consistency in this table, all SIC codes are on the "old" basis.

3 D. & B. provides a detailed breakdown of sizes for firms with assets under $1 million. Above that size, however, all companies are lumped together in this class "over $1 million."

asset value is then reduced by the amount of any of its previous acquisitions which are separately included in the tabulation. This procedure serves a dual purpose: (a) it permits a better count of the actual number of changes in ownership without duplication of assets values when one company is transfered through more than one acquistion; and (b) it permits a more accurate allocation of acquired assets to the industry in which they were actually used. Returning to the Philco illustration, it is more appropriate to classify the $22 million of appliance manufacturing assets in "Domestic laundry equipment" (SIC 3581) than to lump them together with the rest of Philco's operations in its principal line of business, "Radios and related products" (SIC 3661).

DISPOSALS

Considerable effort has been made to avoid counting acquisitions of assets which have subsequently been divested by the acquiring company. Where, as here, the principal focus of interest is on the particular 100 active acquiring companies, the inclusion of properties bought and later sold would overstate the existing size and activities of the acquiring company. Consequently, where such disposals of acquired property are known to have occurred, the acquisition has been ignored completely. While removing this source of overstatement, this procedure understates the number and value of assets changing hands. Textron, for example, made a number of large and important acquisitions during the mid-1950's in textile manufacturing industries, formerly the field of its primary operations. Subsequently, however, it radically altered its entire corporate structure, consolidating its textile operations into its Amerotron Division, which it later sold to Deering-Milliken. By the end of 1963 Textron had taken itself entirely out of textile manufacture. Under the procedure employed in this analysis, none of Textron's merger activity in textile manufacturing has been reflected in the chart, either in number of acquisitions or in value of assets acquired.

Not all divestitures have been as fully reported in Moody's and other sources of public information, and there may well be a number of acquisitions-believed limited largely to smaller enterprises-which would have been excluded had more adequate information been available. In such cases, however, it should be recognized that a change in ownership did occur even though the acquired company was not retained by the 100 "most active" acquirers.

PARTIAL ACQUISITIONS

In some instances commonly referred to as "partial acquisitions"-substantial assets changed hands without the purchase of an entire company. Where available information indicated that what was acquired represented more than $1 million in assets, the acquisition was included. In terms of number the "partial acquisitions" constituted less than one-tenth (and in terms of assets an even smaller proportion) of the significant acquisitions. To cite a few examples, Electric Autolite sold $28 million of its battery and sparkplug facilities to Ford, but continued to operate its other lines of business. Clary Corp. sold its adding machine and cash register division to Sperry-Rand in 1962, remaining primarily in electronics and missiles. RCA sold its appliance-manufacturing assets to Whirlpool in 1955, remaining in that field only as a minority stockholder. And in 1960 Hercules Powder acquired Industrial Rayon's nylon staple fiber facilities.

APPENDIX 7

MATERIAL RELATING TO THE TESTIMONY OF

DR. MICHAEL GORT

Tables 1 and 2 present the evidence on which the remarks of the last two paragraphs of Dr. Gort's statement are based (p. 673). Table 1 shows the industry breakdown of the companies in his sample, the number of major acts of diversification they undertook in the 1929-54 period, and the number of cases in which diversification moved the diversifying firms into the category of leading producers. Table 2 shows the distribution of industries in which diversifying firms (from his sample) became leading producers according to the concentration ratio. It clearly indicates that a large proportion of these industries were in high concentration categories.

TABLE 1.—Relation between industry of company and number of product additions that brought entrants into the class of leading 8 producers in 1954

1 Product additions which show at least 1 plant in the industry and for the company in question in the 1954 census.

Source: M. Gort, "Diversification and Integration in American Industry", Princeton University Press, 1962, p. 131.

969

TABLE 2.-Concentration ratios for entered industries in which entrants were leading producers in 1954

1 Deciles in ascending order with respect to concentration ratio.

2 The ranking of industries (and hence the deciles into which industries fall) when concentration ratios are computed for the leading 8 firms differs from that when the ratios are computed for the leading 4 firms. This explains why in some deciles the frequencies shown for the largest 4 producers are greater than those for the largest 8.

Source: Ibid., p. 130.

APPENDIX 8

MATERIAL RELATING TO THE TESTIMONY OF
DR. LEONARD W. WEISS

REFERENCES

1. Bain, J. S., "Relation of Profit Rate to Industrial Concentration, American Manufacturing, 1936-1940," Quarterly Journal of Economics, August, 1951. 2. Bain, J. S., "Barriers to New Competition," Harvard University Press, 1956. 3. Burck, Gilbert, "The 'Assault' on Fortress IBM," Fortune, June, 1964. 4. Collins, N. R., and Preston, L. E., "The Size Structure of the Largest Firms," American Economic Review, December, 1961.

5. Fuchs, V., "Integration, Concentration and Profits in Manufacturing Industries," Quarterly Journal of Economics, May 1961, pp. 278-91.

6. Garbarino, J. W., "A Theory of Inter-Industry Wage Variation," Quarterly Journal of Economics, May, 1950, pp. 282–305.

7. Gort, M., "Analysis of Stability and Change in Market Shares," Journal of Political Economy, February, 1963.

8. Hymer, S., and Pashigian, P., "Firm Size and Rate of Growth," Journal of Political Economy, December, 1962.

9. Kaplan, A. D. H., Big Enterprise in a Competitive Society, Brookings, 1954. 10. Levinson, H. M., "Post War Movements in Prices and Wages in Manufacturing Industries," Joint Economic Committee, Studies in Employment, Growth, and Price Levels, Study Paper No. 21, 1960.

11. Mansfield, Edwin, "Entry, Innovation and Growth of Firms," American Economic Review, December, 1962.

12. Murphy, C. J. V., “Lockheed Scrambles for the Battle of the Primes," Fortune, February, 1965.

13. Preston, L. E., "Concentration and Rigidity in Industry Structure," Anti-Trust Bulletin, December, 1961.

14. Preston, L. E., Testimony in Hearings on Economic Concentration, Senate Judiciary, Subcommittee on Anti-Trust and Monopoly, Part I, pp. 56-74 and 325-334.

15. Schwartzman, D., "The Effect of Monopoly on Price," Journal of Political Economy, October, 1961.

16. Simon, H. A., and Bonini, C. P., "The Size Distribution of Business Firms," American Economic Review, September, 1958.

17. Simon, H. A., "Comment: Firm Size and Rate of Growth," Journal of Political Economy, February, 1964.

18. Stigler, G., "Capital and Rates of Return," Princeton, 1963.

19. Weiss, L. W., "Average Concentration Ratios and Industrial Performance," Journal of Industrial Economics, July, 1963.

20. Weiss, L. W., "Factors in Changing Concentration," Review of Economics and Statistics, February, 1963.

21. Yntema, T. O., Testimony in Hearings on Administered Prices, Part 6, Subcommittee on Anti-Trust and Monopoly, Senate Judiciary, 1958, pp. 2735– 2737.

971