The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers
AbstractThis paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non-cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro-competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff-jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade-liberalizing reductions in trade costs, a high-cost country's optimal policy may be to ban international mergers. Copyright � 2008 The Author. Journal compilation � 2008 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 16 (2008)
Issue (Month): 5 (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
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- Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2008.
"Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?,"
NIPE Working Papers, NIPE - Universidade do Minho
10/2008, NIPE - Universidade do Minho.
- Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2011. "Mergers and capital flight in unionised oligopolies: Is there scope for a "national champion" policy?," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(2), pages 325-341, April.
- Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2008. "Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?," Working Papers in Economics, University of Bergen, Department of Economics 02/08, University of Bergen, Department of Economics.
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