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Welfare Effect of Mergers and Trade Liberalization

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  • Ray Chaudhuri, A.
  • Benchekroun, H.

    (Tilburg University, Center for Economic Research)

Abstract

In a two-country model where firms behave à la Cournot, we show that marginal and non-marginal trade liberalization have different effects on the social desirability of horizontal mergers. Marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. In the neighborhood of free trade, for sufficiently low cost savings from merger, trade liberalization increases the desirability of merger whilst decreasing the profitability, implying that mergers should be actively encouraged by competition authorities. Furthermore, we identify ranges of tariff levels for which, if trade liberalization increases (decreases) the desirability of merger, it necessarily increases (decreases) its profitability.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-19.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200819

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  1. Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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.
  4. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers.
  5. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January.
  6. 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.
  7. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  8. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 212-225, 05.
  9. 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.
  10. Mark Rysman, 2000. "Competition Policy as Strategic Trade," Papers 0100, Boston University - Industry Studies Programme.
  11. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2007. "Cross-border Mergers and Acquisitions: On Revealed Comparative Advantage And Merger Waves," Tinbergen Institute Discussion Papers 08-013/2, Tinbergen Institute.
  12. Halis Murat Yildiz, 2003. "National Versus International Mergers and Trade Liberalization," Working Papers 2003.56, Fondazione Eni Enrico Mattei.
  13. 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.
  14. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  15. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
  16. David R. Collie, 2003. "Mergers and Trade Policy under Oligopoly," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 55-71, February.
  17. Joao Ricardo Faria & Halis Murat Yildiz, 2005. "Trade Liberalization, Nature of Mergers and Employment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 43-63.
  18. Jen Baggs, 2005. "Firm survival and exit in response to trade liberalization," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1364-1383, November.
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