Trade Liberalization and the Profitability of Domestic Mergers
AbstractIt is often thought that a tariff reduction, by opening up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. In this paper, we show, using a simple example, that in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence, trade liberalization will not necessarily reduce the profitability of domestic mergers.
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Bibliographic InfoPaper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2001-28.
Length: 10 pages
Date of creation: 2001
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mergers; antitrust; free trade;
Other versions of this item:
- Gérard Gaudet & Rams Kanouni, 2004. "Trade Liberalization and the Profitability of Domestic Mergers," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 353-358, 08.
- Gaudet, G. & Kanouni, R., 2001. "Trade Liberalization and the Profitability of Domestic Mergers," Cahiers de recherche 2001-28, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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