A simple approach to dynamic mergers

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Two rocket companies combined to form a de facto monopoly. It was probably a good idea 🤷‍♂️So, a little context. In 2006, Boeing and Lockheed Martin combined their launch divisions in a joint venture into United Launch Alliance. That’s what I mean when I say they combined. It’s not actually a merger, and there are important differences when you get into the weeds of antitrust, but let’s think of this as a merger to a monopoly for simplicity. This seems bad and extra bad in an industry that handles national security payloads. This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.By every static measure, this is the textbook nightmare.Economic Forces readers will know I think the textbook metrics are a bad starting point. So I was intrigued to see a recent paper by Ruibing Su, Chenyu Yang, and Andrew Sweeting, which argues it was probably a good idea.Their key mechanism that is missing from the basic model is that every launch teaches you something. The engineers who fly the fiftieth mission know things the engineers on the first mission didn’t. And before the “merger,” that asset was being duplicated across two separate programs with separate engineering teams, separate supply chains, separate everything. So we have a clear possibility (not sure if its plausible yet) for an efficiency in a specific sense. Is that efficiency enough to outweigh the standard monopoly problem?Su, Yang, and Sweeting argue yes. They use a full structural model, lots of bells and whistles, modern industrial organization stuff. They…