A transactional interpretation of the conglomerate, in which the limita- tions of capital markets in corporate control respects are emphasized, reveals that conglomerate firms (of the appropriate kind) are not altogether lacking in social purpose. If maintaining the market for corporate control is thought generally to be beneficial, if reallocating resources away from lower to favor projects with higher net private returns also generally yields social net benefits as well, and if the antitrust enforcement agencies are to maintain a tough policy with respect to horizontal and vertical mergers, a policy of moderation with respect to conglomerate mergers is indicated. In particular, public policy with respect to conglomerate acquisitions should be focused on (1) mergers where potential competition is meaningfully impaired, and (2) mergers by giant firms not accompanied by a spinoff (or other means of disposing) of comparable assets.
Maintaining a market for mergers also has a bearing on the incentives of individual inventors and small firms to engage in early stage research and development activity. The argument here is elaborated in the chapter which follows.
Source: Williamson Oliver E. (1975), Markets and hierarchies: Analysis and antitrust implications, A Study in the Economics of Internal Organization, The Free Press.