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Welfare Effect of Mergers and Trade Liberalization

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Author Info
Ray Chaudhuri, A.
Benchekroun, H. (Tilburg University, Center for Economic Research)

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Abstract

In a two-country model where firms behave a 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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Find related papers by JEL classification:
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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  1. Long, Ngo Van & Vousden, Neil, 1995. "The Effects of Trade Liberalization on Cost-Reducing Horizontal Mergers," Review of International Economics, Blackwell Publishing, vol. 3(2), pages 141-55, June.
  2. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January. [Downloadable!] (restricted)
  3. Hassan Benchekroun & Amrita Ray Chaudhuri, 2006. "Trade Liberalization and the Profitability of Mergers: a Global Analysis," Review of International Economics, Blackwell Publishing, vol. 14(5), pages 941-957, November. [Downloadable!] (restricted)
  4. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  5. Joao Ricardo Faria & Halis Murat Yildiz, 2005. "Trade Liberalization, Nature of Mergers and Employment," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 14(1), pages 43-63, March. [Downloadable!] (restricted)
  6. Horn, Henrik & Levinsohn, James A, 2000. "Merger Policies And Trade Liberalization," CEPR Discussion Papers 2459, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  8. David R. Collie, 2003. "Mergers and Trade Policy under Oligopoly," Review of International Economics, Blackwell Publishing, vol. 11(1), pages 55-71, February. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2005. "Cross-Border Mergers and Acquisitions: On Revealed Comparative Advantage and Merger Waves," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  11. 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. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies," Review of International Economics, Blackwell Publishing, vol. 14(2), pages 212-225, 05. [Downloadable!] (restricted)
  16. Halis Murat Yildiz, 2003. "National Versus International Mergers and Trade Liberalization," Working Papers 2003.56, Fondazione Eni Enrico Mattei. [Downloadable!]
  17. Gérard Gaudet & Rams Kanouni, 2004. "Trade Liberalization and the Profitability of Domestic Mergers," Review of International Economics, Blackwell Publishing, vol. 12(3), pages 353-358, 08. [Downloadable!] (restricted)
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  18. Mark Rysman, 2000. "Competition Policy as Strategic Trade," Papers 0100, Boston University - Industry Studies Programme.
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