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Cross-Border Mergers as Instruments of Comparative Advantage

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  • J Peter Neary

    (University College of Dublin)

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
File Function: First version, 2004
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200404.

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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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Keywords: Comparative advantage; cross-border mergers; GOLE (General Oligopolistic Equilibrium); market integration; merger waves;

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References

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  2. J Peter Neary, 2002. "Globalisation and Market Structure," Working Papers 200220, School Of Economics, University College Dublin.
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  6. Toxvaerd, Flavio, 2007. "Strategic Merger Waves: A Theory of Musical Chairs," CEPR Discussion Papers 6159, C.E.P.R. Discussion Papers.
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  10. Olivier Bertrand & Habib Zitouna, 2006. "Trade Liberalization and Industrial Restructuring: The Role of Cross-Border Mergers and Acquisitions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 479-515, 06.
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  12. 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.
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  15. Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
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  17. 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.
  18. 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.
  19. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
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  22. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
  23. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
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  25. JASKOLD GABSZEWICZ, Jean & VIAL, Jean-Philippe, . "Oligopoly "à la Cournot" in a general equilibrium analysis," CORE Discussion Papers RP -106, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  28. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  29. 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).
  30. 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.
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