Trade Liberalization and the Profitability of Domestic Mergers
AbstractIt is often thought that a tariff reduction, by opening-up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. Using a simple example, the authors show that, in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence trade liberalization will not necessarily reduce the profitability of domestic mergers. Copyright Blackwell Publishing Ltd 2004.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 12 (2004)
Issue (Month): 3 (08)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
Other versions of this item:
- Gaudet, G. & Kanouni, R., 2001. "Trade Liberalization and the Profitability of Domestic Mergers," Cahiers de recherche 2001-28, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- GAUDET, Gérard & KANOUNI, Rams, 2001. "Trade Liberalization and the Profitability of Domestic Mergers," Cahiers de recherche 2001-28, Universite de Montreal, Departement de sciences economiques.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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