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Cross-Border Mergers as Instruments of Comparative Advantage

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Author Info
J Peter Neary (University College of Dublin)

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Abstract

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital market liberalisation. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. With symmetric countries, welfare may rise or fall, though the distribution of income always shifts towards profits. The model implies that trade liberalisation can trigger international merger waves, in the process encouraging countries to specialise and trade more in accordance with comparative advantage.

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File URL: http://www.ucd.ie/economics/research/papers/2004/WP04.04.pdf
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File Function: First version, 2004
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Publisher Info
Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200404.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 47 pages
Date of creation: 01 Mar 2004
Date of revision:
Handle: RePEc:ucn:wpaper:200404

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Postal: UCD, Belfield, Dublin 4
Phone: +353-1-7067777
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics
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Related research
Keywords: Comparative advantage; cross-border mergers; GOLE (General Oligopolistic Equilibrium); market integration; merger waves;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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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. Ramón Faulí-Oller, 1997. "-On Merger Profitability In A Cournot Setting," Working Papers. Serie AD 1997-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  3. Olivier Bertrand & Habib Zitouna, 2006. "Trade Liberalization and Industrial Restructuring: The Role of Cross-Border Mergers and Acquisitions," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(2), pages 479-515, 06. [Downloadable!] (restricted)
  4. Horn, Henrik & Levinsohn, James, 2001. "Merger Policies and Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 111(470), pages 244-76, April. [Downloadable!] (restricted)
    Other versions:
  5. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  6. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Ramon Fauli-Oller, 2000. "Takeover Waves," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(3), pages 189-210, 06. [Downloadable!] (restricted)
  8. Ramon Fauli-Oller, 2000. "Takeover Waves," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(2), pages 189-210, 06. [Downloadable!] (restricted)
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  11. Baldwin, Richard E. & Ottaviano, Gianmarco I. P., 2001. "Multiproduct multinationals and reciprocal FDI dumping," Journal of International Economics, Elsevier, vol. 54(2), pages 429-448, August. [Downloadable!] (restricted)
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  12. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March. [Downloadable!] (restricted)
  13. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003. "The effects of mergers: an international comparison," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 625-653, May. [Downloadable!] (restricted)
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  14. Volker Nocke & Stephen Yeaple, 2004. "Mergers and the Composition of International Commerce," NBER Working Papers 10405, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 4(3), pages 381-400, June. [Downloadable!] (restricted)
  16. J.Peter Neary, 2003. "Globalisation and Market Structure," DNB Staff Reports (discontinued) 100, Netherlands Central Bank. [Downloadable!]
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  17. repec:rus:hseeco:122439 is not listed on IDEAS
  18. Fauli-Oller, Ramon, 1997. "On merger profitability in a Cournot setting," Economics Letters, Elsevier, vol. 54(1), pages 75-79, January. [Downloadable!] (restricted)
  19. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June. [Downloadable!] (restricted)
  20. 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)
  21. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December. [Downloadable!] (restricted)
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  22. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market: a General Equilibrium Approach," CEPR Discussion Papers 3526, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  23. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December. [Downloadable!] (restricted)
  24. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April. [Downloadable!] (restricted)
  25. Helpman, Elhanan & Melitz, Marc J & Yeaple, Stephen R, 2003. "Export versus FDI," CEPR Discussion Papers 3741, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  26. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Blackwell Publishing, vol. 21(8), pages 1061-1076, November. [Downloadable!] (restricted)
  27. Inés Macho-Stadler & David Pérez-Castrillo & Nicol? Porteiro, 2002. "Sequential Formation of Coalitions through Bilateral Agreements," UFAE and IAE Working Papers 515.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  28. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April. [Downloadable!] (restricted)
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  29. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
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  30. Donald R. Davis & David E. Weinstein, 2002. "What role for empirics in international trade?," Discussion Papers 0102-05, Columbia University, Department of Economics. [Downloadable!]
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  31. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November. [Downloadable!] (restricted)
  32. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  33. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  34. Roberts, John & Sonnenschein, Hugo, 1977. "On the Foundations of the Theory of Monopolistic Competition," Econometrica, Econometric Society, vol. 45(1), pages 101-13, January. [Downloadable!] (restricted)
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  35. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June. [Downloadable!] (restricted)
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