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Merger, Product Differentiation, and Trade Policy

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  • Cavagnac, Michel
  • Cheikbossian, Guillaume

Abstract

In a two-stage game with three firms and two countries, we study the profitability of a domestic merger in the context of an international oligopoly game with differentiated products and in a strategic trade policy environment. In contrast to a completely unregulated economy, we show that the domestic merger under Cournot competition is always profitable to the host country irrespective of the degree of product differentiation. Furthermore, it is also profitable to the competing country - hosting one firm only if products are sufficiently differentiated. Under Bertrand competition the merger is always profitable to both countries independently of the product range rivalry. But in a strategic trade environment it is more profitable to the country in which the merger occurs than to the other country.

Suggested Citation

  • Cavagnac, Michel & Cheikbossian, Guillaume, 2013. "Merger, Product Differentiation, and Trade Policy," TSE Working Papers 13-399, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:27139
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    References listed on IDEAS

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    1. Hudson, Darren & Herndon, Cary W., Jr., 2000. "Mergers, Acquisitions, Joint Ventures, And Strategic Alliances In Agricultural Cooperatives," Research Reports 15799, Mississippi State University, Department of Agricultural Economics.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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