Merger for Monopoly: The Formation of U.S. Steel

Abstract

Scholars have posited three reasons as to why U.S. Steel Corporation was formed: to swindle the public, to monopolize the steel industry, or to become a more efficient firm. The evidence from a stock market event study shows that from its inception, U.S. Steel was viewed as a monopolistic competitor. The stock prices of component and competing firms reacted positively to the announcement of the company’s formation. This is consistent with the theory that U.S. Steel was formed to monopolize the domestic steel industry, inconsistent with the theory that U.S. Steel was formed to become a more efficient firm, and inconsistent with the theory that US. Steel was formed in order to sell overpriced stock to an unsuspecting public. These results confirm Stigler’s conclusions in his classic paper “The Dominant Firm and the Inverted Umbrella,” despite that paper’s empirical flaws. Further, this conclusion is supported by much of the recent literature on U:S. Steel.