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Political contributions, subsidy and mergers

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  • M. Ozgur Kayalica

    ()
    (Istanbul Technical University)

  • Rafael Salvador Espinosa Ramirez

    (Universidad de Guadalajara)

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    Abstract

    We examine, in a oligopolistic partial equilibrium model, the effects of mergers and internal lobbies in shaping national subsidy policies. Domestic and foreign firms compete in the market for a homogeneous good in a host country, then the optimal output of the firms can be affected ambiguously by the government subsidy policy in the host country. Domestic firms offer political contributions to the government, that are tied to the government’s policy decision. The government sets the optimal policy maximizing a weighted sum of total contributions and aggregate social welfare taking into account merger of domestic firms as a competitive response.

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    Bibliographic Info

    Article provided by Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia. in its journal EconoQuantum, Revista de Economia y Negocios.

    Volume (Year): 9 (2012)
    Issue (Month): 2 (Julio-Diciembre)
    Pages: 61-80

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    Handle: RePEc:qua:journl:v:9:y:2012:i:2:p:61-80

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    Related research

    Keywords: Foreign Direct Investment; Mergers; Lobby;

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    References

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    1. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
    2. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
    3. Rafael S. Espinosa Ramírez & M. Ozgur Kayalica, 2007. "Environmental Policies and Mergers’ Externalities," Economia Mexicana NUEVA EPOCA, , vol. 0(1), pages 47-74, January-J.
    4. Sajal Lahiri and Yoshiyasu Ono, . "Tax Policy on Foreign Direct Investment in the Presence of Cross-Hauling," Economics Discussion Papers 472, University of Essex, Department of Economics.
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    7. Long, Ngo Van & Vousden, Neil, 1995. "The Effects of Trade Liberalization on Cost-Reducing Horizontal Mergers," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 141-55, June.
    8. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
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    13. Hassan Benchekroun & Amrita Ray Chaudhuri, 2006. "Trade Liberalization and the Profitability of Mergers: a Global Analysis," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 941-957, November.
    14. Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
    15. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
    16. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
    17. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Munich Reprints in Economics 20408, University of Munich, Department of Economics.
    18. David R. Collie, 2003. "Mergers and Trade Policy under Oligopoly," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 55-71, February.
    19. Ross, Thomas W., 1988. "On the price effects of mergers with freer trade," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 233-246.
    20. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-69, August.
    21. Itagaki, Takao, 1979. "Theory of the Multinational Firm: An Analysis of Effects of Government Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 437-48, June.
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