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The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers

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  • Marie‐Françoise Calmette

Abstract

This paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non‐cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro‐competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff‐jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade‐liberalizing reductions in trade costs, a high‐cost country's optimal policy may be to ban international mergers.

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  • Marie‐Françoise Calmette, 2008. "The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 874-892, November.
    • Handle: RePEc:bla:reviec:v:16:y:2008:i:5:p:874-892
    DOI: 10.1111/j.1467-9396.2008.00755.x
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    Cited by:

    1. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2011. "Mergers and capital flight in unionised oligopolies: Is there scope for a "national champion" policy?," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 325-341, April.
    2. Gaussens, Olivier & Lecostey, Sophie & Simon, Geoffray, 2011. "Intégration internationale et concurrence effective : quelques apports de la théorie de l’oligopole," L'Actualité Economique, Société Canadienne de Science Economique, vol. 87(4), pages 481-502, décembre.

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