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Strategic Management Journal
Strat. Mgmt. J.
,
26
: 769–790 (2005)Published online 7 June 2005 in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.473
ANTITRUST HOLDUP SOURCE, CROSS-NATIONALINSTITUTIONAL VARIATION, AND CORPORATEPOLITICAL STRATEGY IMPLICATIONS FORDOMESTIC MERGERS IN A GLOBAL CONTEXT
JOSEPH A. CLOUGHERTY*
Wissenschaftszentrum Berlin (WZB), Berlin, Germany 
 Managers are increasingly uncertain over the source (home nation or foreign nation) of antitrust holdup for domestic mergers with significant international implications. I proposea conceptual framework that predicts the source of antitrust holdup for domestic mergers. I find an industry’s global competitiveness to be the primary driver behind holdup source.Further, I factor institutional conditions to yield more precise predictions tailored to the cross-national environment for antitrust policy. Exploratory empirical tests based on the merger  policies of 27 antitrust jurisdictions over the 1992–2000 period provide support for baseline predictions. Finally, I generate prescriptive propositions that yield implications for effective political strategies.
Copyright
2005 John Wiley & Sons, Ltd.
INTRODUCTION
Admitting he was not too old to be surprised, Jack Welch, veteran chairman of General Electric andmastermind of its intended merger with Honeywell,stomped away from Brussels on June 14th, sayingthat the European Commission’s conditions forallowing the deal were so tough that they wouldfatally undermine it. But should he have beensurprised?
...
For its part, GE was slow initially tograsp that the commission would be a lot tougherthan its American counterparts. (
The Economist 
,2001a: 73)
The majority of domestic mergers and acquisi-tions pass the antitrust review process with onlynominal government perusal; however, antitrustauthorities can and do launch extensive mergerinvestigations. Such investigations may negatively
Keywords: corporate political strategy; non-market strat-egy; merger reviews; antitrust policy
*Correspondence to: Joseph A. Clougherty, WZB, ResearchUnit, MP/CIC, Reichpietschufer 50, 10785 Berlin, Germany. E-mail: Clougherty@wz-berlin.de
impact firms by delaying the onset of the intendedmerger, leading to merger restrictions, or evenresulting in outright merger prevention (Pittman,1977). Thus from a managerial perspective, theantitrust process exhibits substantial holdup poten-tial. Managers are accustomed to antitrust holdupfrom home nation antitrust authorities; however,two global trends from the last two decadeshave increased the likelihood of foreign nationantitrust holdup. First, a number of nations havestrengthened their antitrust regulations in orderto secure the benefits of deregulation (Boner andKrueger, 1991). Second, domestic mergers increas-ingly involve implications that affect market out-comes in foreign markets (Melamed, 2000). Con-sequently, managers are increasingly uncertainregarding the source (home based or foreign based)of antitrust holdup for merger reviews (
The Economist 
, 2001b).My purpose is to develop a conceptualframework for predicting the source of antitrustholdup for domestic mergers with internationaleffects. Explaining what drives alternation between
Copyright
2005 John Wiley & Sons, Ltd.
Received 2 March 2003Final revision received 16 February 2005
 
770
J. A. Clougherty
home-based and foreign-based antitrust holdupmerits attention as the above-mentioned globaltrends—enhanced domestic antitrust policiesand growing international effects of domesticmergers—show no signs of abating; hence, anincreasing amount of uncertainty exists over thesource of antitrust holdup for domestic mergers.I base the conceptual framework on a new sub-literature within industrial organization (IO) thatconsiders domestic mergers in an open economy(see Clougherty and Zhang, 2005, for a shortreview) and the institutional literature withininternational political economy (IPE) and politicaleconomy (see Lenway and Murtha, 1994; Murthaand Lenway, 1994; Hillman and Keim, 1995, forhow business scholars treat this literature).Much of the prior management research on busi-ness–government interaction lies in the domain of corporate political strategy (CPS: e.g., Baysinger,1984; Keim and Zeithaml, 1986; Keim andBaysinger, 1988; Lenway and Rehbein, 1991;Schuler, 1996). Fundamental to the CPS perspec-tive has been the contention that a two-way rela-tionship exists between business and government:government impacts business, but business alsoimpacts government (Epstein, 1969; Aplin andHegarty, 1980). Research in CPS has enhancedour understanding of the business–governmentinteraction concerning a number of different pub-lic policies. Management scholars, however, havenot focused on antitrust policy or on the busi-ness–government interface concerning antitrustpolicy (Barney, 2001). This author found onlytwo management studies—Hillman, Zardkoohi,and Bierman (1999) and Clougherty (2003)—thatconsider firm ability to politically shape antitrustoutcomes; though admittedly, this omission isshared by other disciplines concerned with thebusiness–government interface (McChesney andShughart, 1995). Yet, the dearth of managementscholarship particularly surprises in light of exten-sive management research on other merger dimen-sions: e.g., motives; stock market reactions; topmanagement turnover; R&D expenditures. Beyondfilling a void in the management and CPS lit-eratures concerning antitrust holdup for domesticmergers in a cross-national setting, this analysismakes two additional contributions to the CPSliterature: specifically incorporating cross-nationalinstitutional variation for antitrust policy in to theconceptual framework; and enhancing the rigor of CPS scholarship.First, management scholars writing from theCPS (e.g., Hillman and Keim, 1995) and Inter-national Business (e.g., Boddewyn and Brewer,1994) traditions have been calling for researchersto note that the business–government interfaceis altered by different institutional contexts. Forinstance, Dunning (1997) observes that a numberof different contexts exist across nations due tohistorical, cultural, and political artifacts. Accord-ingly, management scholarship (e.g., Hillman andHitt, 1999) has increasingly recognized that politi-cal institutions play an important mediating rolein the business–government interface. Antitrustpolicy also indicates cross-national variation in itsinstitutional context (Scherer, 1996). The analysishere begins by assuming cross-national homogene-ity in antitrust institutions in order to identifythe primary driver of holdup source; but thenrelaxes the assumption of idealized institutionalconditions to allow for cross-national institutionalvariation. Specifically, I identify three dimen-sions—institutional mission, institutional capabil-ity, and institutional autonomy—critical toantitrust policy that alter the primary causal forcesbehind holdup source. In short, this analysisresponds to the call within CPS to factor institu-tional variation in the business–government inter-face.Second, management scholars (e.g., Epstein,1980; Mitnick, 1993; Vogel, 1996) have expressedconcern regarding the lack of rigor in CPS. Thesupporting role of IO and IPE literatures in thisanalysis yields a systematic approach that enhancesanalytical rigor. The IO literature helps uncover theprimary economic drivers behind antitrust holdupsource and formulate testable propositions restingon structural foundations. The IPE literature helpsuntangle variation found in the cross-national insti-tutional setting for antitrust. In short, this analysisresponds to the call within CPS to enhance analyt-ical rigor with respect to the business–governmentinterface.Developing a framework to illuminate the busi-ness–government interface concerning home andforeign antitrust holdup requires five specific steps,upon which the organization of the paper follows.First, I define the concept of antitrust holdup andconsider its managerial relevance. Second, I buildon the IO literature to identify a primary causalforce behind when home or foreign authoritiesare the more likely holdup source for a domesticmerger with international effects. Third, I invoke
Copyright
2005 John Wiley & Sons, Ltd.
Strat. Mgmt. J.
,
26
: 769–790 (2005)
 
Source of Antitrust Holdup for Mergers
771
the literature on political economic institutionsin order to factor variation in the cross-nationalinstitutional environment for antitrust, as insti-tutional characteristics may mediate the impactof the primary causal force. Fourth, using cross-national (27 antitrust jurisdictions) and pan-time(1992–2000) data, I present empirical tests sup-portive of an industry’s global competitivenessdriving antitrust holdup source and supportive of institutional characteristics mediating the impact of the primary causal force. Fifth, using the insightscaptured by the above steps, I prescribe normativepropositions for the optimal political strategy of merging firms.
ANTITRUST HOLDUP: DEFINITIONAND MANAGERIAL RELEVANCE
Prior to delving further into the relevant theoryand generating propositions regarding the busi-ness–government interface for merger reviews, itbehooves us to clarify the concept of antitrustholdup. Antitrust holdup plays a fundamental rolein the analysis, as the paper holds throughoutthat antitrust scrutiny (whether home or foreign)remains a threat to merging firms. Consequently,I define antitrust holdup in this context to beany action taken by an antitrust authority thatreduces or delays the intended benefits of a pro-posed merger. The discussion below will elaborateon the construct and clearly state the managerialrelevance (i.e., the bottom line) of being able topredict the source of antitrust scrutiny for domesticmerger activity.Despite variation in antitrust policy structuresacross nations, one can generate a ‘typical’ antitrustprocess by which the majority of nations conform.First, each nation experiences so many proposeddomestic mergers over a certain period. Of theseproposed mergers, a large number will customar-ily require reporting to antitrust authorities. Whilethe great majority of reported mergers pass theantitrust review process with virtually no antitrustperusal, certain mergers will raise antitrust con-cerns and be subject to further investigation. In theUnited States, approximately 5 percent of mergersreach this scrutiny level (U.S. DOJ, 1998). After adetailed investigation, the antitrust authority cantake a number of actions: accept as proposed;accept with provisions for monitoring and/or withstipulations on post-merger competitive tactics;accept with requirements for asset divestment; orprevention. Note that many mergers become dis-solved when merging parties find their venturemeriting higher levels of scrutiny; hence, dissolvedmergers also represent antitrust holdup. Accord-ingly, we can operationalize our earlier definitionof antitrust holdup by noting that levels of antitrustscrutiny that involve investigations, monitoringand/or competitive curbs, dissolved mergers, assetdivestments and preventions represent antitrustholdup. Antitrust holdup is more than a dichoto-mous construct (where a merger is either approvedor rejected) as higher levels of scrutiny reflecthigher degrees of holdup, and higher degrees of holdup represent enhanced threats to the intendedstrategy of merging firms.The holdup threat traditionally originates fromhome antitrust authorities, but increasingly origi-nates from foreign antitrust authorities. Some read-ers may question the ability of foreign nationantitrust authorities to impact domestic mergersin other nations; yet, foreign authorities have afew means to counteract these mergers. First, for-eign authorities can prevent or curtail the mergerwith respect to the international operations of the firms. For instance, Coca Cola’s acquisitionof Cadbury-Schweppes’ soft drink business wascurtailed by various national antitrust authoritiesobjecting to the integration of bottling plants anddistribution networks within their national borders(OECD, 1998). Second, if a bilateral treaty existsbetween two nations for antitrust issues, then for-eign authorities can potentially block the mergervia the bilateral procedure (Campbell and Trebil-cock, 1997). Third, many authorities (United Statesand European Union in particular) apply antitrustlaws outside their territory (Trebilcock, 1996).Providing a framework that reduces uncertaintyover the source of antitrust holdup consequentlyyields a number of benefits for merging par-ties. First, prior knowledge regarding which juris-dictions are likely to present higher degrees of antitrust holdup helps acquiring firms make opti-mal target choices: i.e., avoid targets with sig-nificant operations in nations likely to engage inholdup. Second, prior knowledge on the degree of antitrust holdup might help with time-dependentmergers (where a quick response to a rival isnecessary or stock market valuation changes canreduce merger value), as higher degrees of antitrustholdup reflect enhanced time and effort in obtain-ing merger approval. Third, prior knowledge on the
Copyright
2005 John Wiley & Sons, Ltd.
Strat. Mgmt. J.
,
26
: 769–790 (2005)
of 00

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