Reports that Ford is planning to sell its Premier Automotive Group, which includes Jaguar, Volvo and Land Rover, raise three questions for orthodox neoclassical economics:
1. Are economies of scale, or synergies, over-rated? You'd imagine that Ford could find synergies with Jaguar: they could use common components, marketing or adminstrative functions. Such synergies should make Jaguar more valuable to Ford than to others. But this seems not to be the case; one reason for the X-type's poor sales was the perception that it was just an over-priced Mondeo.
As Robert Peston says, the marriage failed. Doesn't this show that diseconomies of scale often bind, whilst economies are surprisingly elusive?
2. In the absence of asset complementarities, does ownership matter? Bog-standard neoclassical economics says it doesn't. There's only one way to maximize profits - make marginal cost = marginal revenue. Both are largely exogenous. It's just a matter of computing to determine them. And, everyone being rational, this computation can be done by anyone.
On this view, it doesn't matter who owns Jaguar, as profits will be maximized regardless. But meeja talk suggests ownership does matter. So why exactly is the neoclassical view wrong, if it is?
3. Whatever happened to liquidity constraints? We used to think that one advantage of big, incumbent firms was that they had easier access to cheap finance; they have collateral, internal funds and reputation.
But this is no longer true. Ford is potless, because its incumbency - once an advantage - has left it with huge legacy costs. The best hope for recapitalizing Jaguar, Land Rover and Volvo - new cars are horribly expensive to design - is if they are bought by a venture capital firm with high leverage.
This raises the question: if the advantages of age and incumbency are waning, shouldn't we expect to see much more creative destruction in future?