Experience Stern | Faculty & Research

Overview: In the paper titled “Mergers, Foreign Competition, and Jobs: Evidence from the U.S. Appliance Industry,” NYU Stern Professor Felix Montag examines how foreign competition alters the effects of mergers, namely the impacts on product prices and domestic employment. Montag also develops a framework that simulates the effects of a merger on consumers and jobs, calculating a dollar value on the trade-off.

Why Study This Now: There is ongoing debate among U.S. economic policymakers weighing the pros and cons of sacrificing consumer welfare (i.e. factors that impact demand, like price or quality) to protect domestic manufacturing jobs. In competition policy, authorities must evaluate what a merger might do to consumers (e.g. increase prices, decrease product quality) while simultaneously anticipate the impact on employment and if jobs will be lost or moved abroad. Montag’s framework provides a benchmark for these comparisons.

What the Author Found: After constructing a model that incorporates consumer demand, product portfolios, and employment decisions, Montag retrospectively applied the model to the 2006 Whirlpool acquisition of Maytag, as well as compared the merger to a hypothetical acquisition by a foreign buyer. He found that:

• Whirlpool’s acquisition decreased consumer welfare by $271 million annually, while also preserving nearly 800 domestic jobs
• In order for the employment preservation benefit to offset the consumer harm, each job must be valued at more than $344,000 per year
• These costs and benefits were also distributed very unevenly: consumer losses are spread thinly across millions of U.S. households, while employment effects are concentrated within a small number of local labor markets

What Does This Change: The findings challenge both sides of the policy debate. While the traditional antitrust perspective views consumer impact as paramount in mergers, the framework can show that there are measurable employment implications. To the opposing view that protecting jobs justifies merger effects of consolidation or imposed tariffs, the findings highlight the true expense of each job preserved on consumers.

Key insight: “Rather than weakening merger enforcement to protect jobs, I argue for pairing rigorous enforcement with targeted labor market policies, such as wage insurance for displaced workers,” said Montag. “This could reconcile the interests of workers and consumers and make strict enforcement politically more viable.”

This research was published in the American Economic Review.