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Cross-border mergers and market concentration in a vertically related industry: theory and evidence

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  • Avik Chakrabarti
  • Yi-Ting Hsieh
  • Yuanchen Chang

Abstract

We present a tractable model of oligopoly to identify the linkages between local competition and cross-border mergers in a vertically related industry. We show that the incentives for cross-border mergers rise with vertical integration in an industry when the premerger concentration in that industry is sufficiently high relative to the concentration in the same industry in a foreign country. We also show that the incentives for a merger between a foreign firm and a vertically integrated home firm will be higher than that for a merger between a foreign firm and a disintegrated home firm, when the premerger concentration at home is low relative to the premerger concentration in the foreign country. We then analyze a firm-level panel of 90,614 M&A observations, between 1990 and 2012, from 86 countries. Logistic regressions confirm that market concentration is an important determinant of cross-border M&A. Our results support the conjectures of our theoretical model and are consistent with recent empirical findings and theoretical predictions.

Suggested Citation

  • Avik Chakrabarti & Yi-Ting Hsieh & Yuanchen Chang, 2017. "Cross-border mergers and market concentration in a vertically related industry: theory and evidence," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(1), pages 111-130, January.
    • Handle: RePEc:taf:jitecd:v:26:y:2017:i:1:p:111-130
    DOI: 10.1080/09638199.2016.1220971
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    Cited by:

    1. Federico Carril‐Caccia & Elena Pavlova, 2020. "Mergers and acquisitions & trade: A global value chain analysis," The World Economy, Wiley Blackwell, vol. 43(3), pages 586-614, March.

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