The attempted merger between General Electric and Honeywell, a case study of transatlantic conflict
Abstract\cf1\f1 This paper analyzes how State aid affects and distorts competition and trade within and across jurisdictions. We identify the circumstances in which state aid is likely to involve the largest distortions. In the context of the paper distortion of competition" is interpreted as the effect on rivals\f2\rquote\f1 profits. We consider three types of state intervention, namely subsidies which affect marginal cost, entry and quality and analyse whether particular market characteristics are robust indicators of the magnitude of the distortions. We obtain the following results: (i) it appears that concentration is a fairly robust indicator; (ii) A high degree of substitution across differentiated products is not a robust indicator of the magnitude of the distortions. Its effect depends on the type of state intervention; (iii) The substitution among domestic products may have opposite effects respectively on domestic and foreign firms. In particular, when the market is not concentrated and state aid takes the form of a production subsidy, a stronger substitution among domestic products will reduce the distortions felt by the foreign firm (but increase that felt by domestic rivals); Finally, (iv) the paper demonstrates that the impact of selective State aid on market prices and competitors can depend on the particular characteristics of the market JEL Classification numbers: K21; L10; L40
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Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 06-2005.
Length: 31 pages
Date of creation: 01 Nov 2005
Date of revision:
State aids; EU Antitrust; distortions of competition;
Other versions of this item:
- Jeremy Grant, Damien Neven, 2005. "The attempted merger between General Electric and Honeywell - A case study of transatlantic conflict," IHEID Working Papers 05-2005, Economics Section, The Graduate Institute of International Studies.
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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