Mega Mergers and the Monopolization of "Consumer Attention"

ABSTRACT

In "The IT Revolution and the Scarcity of Time" (FRIRR 101), my colleagues and I theorized the development of competition amongst corporations for consumer attention, a competition that arose because of the limitation placed upon consumer attention by the scarcity of time. The idea was referred to as the "attention monopoly theory." In that report, we also suggested that mega mergers, which have been a topic of interest in recent times, could be explained or at least interpreted within this context.

In this report, I would like to look more deeply into the relationship between mega mergers and the competition for attention. First, I would like to look at some facts about mega mergers, then, through a distillation of previous research and a survey of individual cases, I would like to present the theory of "attention monopoly" as a valid explanation for the occurrence of mega mergers.

A search for the keywords "Mega Mergers," "Large-Scale Mega Mergers," "Large Mergers," and "Great Mergers," was conducted in the four editions of the Nihon Keizai newspaper from 1990 to 2001. After eliminating repeated coverage, the following data was compiled. 1) From 1990 to 2000, there were as many as 137 mega mergers in various industries, from banking to space defense, around the world. 2) Overall, mega mergers were on the rise, and particularly so in the latter half of the decade. 3) Most mega mergers occurred in the banking industry, which accounted for 36% of the total. Other industries that stood out were communications and media, retail, chemicals and pharmaceuticals, and, in Japan, the paper pulp industry. 4) The percentage of mega mergers in the B2C industries compared to those in other industries was 70% for foreign countries; 60% when Japan's data was included. This proportion rose especially in Japan during the latter half of the decade.

Economy of scale and economy of scope are often pointed to as the reason for mega mergers. The benefits in this respect can be summarized as follows: 1) merits derived form large-scale production, 2) decrease in average unit cost due to the distribution of the same fixed cost over more production units, 3) increase in bargaining power, 4) the spill-over of technology and know-how, 5) the distribution of risk, or the portfolio effect, and finally 6) the synergistic effect of one-stop shopping. The following report will posit the idea of monopolizing attention as another motivation for mega mergers.

This report makes the following four conclusions: 1) Economy of scale and economy of scope are weak explanations for mega mergers, particularly in the B2C industries. 2) Acquiring attention is an existing motivation for mega mergers in the B2C industries. 3) Mega mergers in the pharmaceuticals industry, during the latter half of the 90s, were aimed at technology spillovers and the distribution of risk resulting from the expansion of scale. 4) The commonly accepted theory that the purpose of undergoing a mega merger is to reduce costs through economies of scale and economies of scope is very doubtful.

In the interest of a healthy society, it will be important to take new precautions against corporations that pursue mega mergers for the sake of monopolizing attention. First of all, corporations that succeed in controlling consumer attention - a highly scarce resource - are not necessarily efficient; and when they are not, the inefficiency becomes protected and preserved. Secondly, corporations that compete for attention have a natural tendency to become larger in scale than economic efficiency would dictate. Thirdly, companies that lose out in the increasingly competitive race to acquire attention will find that all the capital they have invested has gone to waste.

The following are suggestions for ways to protect against this new type of waste and inefficiency : 1. Review the current monopoly prohibition regulations that apply to business practices and ownership rights (e.g. for such things as land), and expand them to include the "asset" of attention. 2. Strengthen the penalties - e.g. raise taxes - against such monopolizing corporations. 3. Try and make searching more prevalent as a way to prevent attention monopolization from the outset: setup NPOs to perform searches or construct a social information sharing system with more lenient accountability rules for individual information transmission.