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The Trade and Welfare Effects of Mergers in Space

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  • Hartmut Egger
  • Peter Egger

Abstract

This paper analyzes the consequences of cross-border mergers in a spatial framework, thereby distinguishing three channels of influence: a price increase due to the elimination of product market competition, an adjustment in plant location which reduces overall transportation cost expenditures, and a harmonization in production costs due to a technology transfer within the firm. The welfare analysis illustrates that larger countries are better off after the merger. By contrast, smaller countries may lose, if the pre-merger production cost differential across firms is negligible and/or a post-merger technology transfer across production sites is infeasible. Furthermore, the analysis provides novel insights into the trade pattern effects of a merger. In this respect, the main result of the paper is that an adjustment of plant location in space can reverse the direction of (net) trade flows.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2217.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2217

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Keywords: spatial competition; cross-border merger; trade pattern; welfare analysis;

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References

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  1. Volker Nocke & Stephen Yeaple, 2004. "An Assignment Theory of Foreign Direct Investment," NBER Working Papers 11003, National Bureau of Economic Research, Inc.
  2. THARAKAN , Joe & THISSE, Jacques-François, . "The importance of being small. Or when countries are areas and not points," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1542, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. J Peter Neary, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Working Papers, School Of Economics, University College Dublin 200404, School Of Economics, University College Dublin.
  4. Hartmut Egger & Peter Egger, 2004. "Outsourcing and Trade in a Spatial World," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c009_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  5. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, Elsevier, vol. 46(2), pages 183-203, December.
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  7. Brouwer, A.E. & Mariotti, I. & Ommeren, J.N. van, 2003. "The firm relocation decision: an empirical investigation," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0023, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
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  11. George Norman & Lynne Pepall, 2000. "Profitable Mergers in a Cournot Model of Spatial Competition," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 66(3), pages 667-681, January.
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  18. Huck, Steffen & Konrad, Kai A., 2001. "Merger profitability and trade policy," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) FS IV 01-12, Social Science Research Center Berlin (WZB).
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  22. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1341, C.E.P.R. Discussion Papers.
  23. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, Elsevier, vol. 48(6), pages 1211-1226, December.
  24. Pedro Posada & Odd Rune Straume, 2004. "Merger, Partial Collusion and Relocation," Journal of Economics, Springer, Springer, vol. 83(3), pages 243-265, December.
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Cited by:
  1. G. F. Gori & L. Lambertini, 2012. "Trade liberalisation between Asymmetric Countries with Environmentally Concerned Consumers," Working Papers wp824, Dipartimento Scienze Economiche, Universita' di Bologna.

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