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Merger Profitability and Trade Policy

  • Steffen Huck
  • Kai A. Konrad

We study the profitability incentives for merger and the endogenous industry structure in a strategic trade policy environment. Merger changes the strategic trade policy equlilibrium. We show that merger can be profitable and welfare enhancing, even though it would not be profitable in a "laissez-faire" economy. A key element is a change in the governments' incentives to give subsidies to their local firms. National merger induces more strategic trade policy, whereas international merger does not. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .

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Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

Volume (Year): 106 (2004)
Issue (Month): 1 (03)
Pages: 107-122

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Handle: RePEc:bla:scandj:v:106:y:2004:i:1:p:107-122
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  1. Neven, Damien J & Röller, Lars-Hendrik, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," CEPR Discussion Papers 2620, C.E.P.R. Discussion Papers.
  2. Barros, Pedro P. & Cabral, Luis, 1994. "Merger policy in open economies," European Economic Review, Elsevier, vol. 38(5), pages 1041-1055, May.
  3. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
  4. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  5. 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.
  6. Richard Schmalensee, 1976. "A Model of Promotional Competition in Oligopoly," Review of Economic Studies, Oxford University Press, vol. 43(3), pages 493-507.
  7. 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.
  8. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  9. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  10. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
  11. Lommerud, Kjell Erik & Straume, Odd Rune & Sørgard, Lars, 2000. "Merger Profitability in Unionized Oligopoly," University of California at Santa Barbara, Economics Working Paper Series qt9736w3k9, Department of Economics, UC Santa Barbara.
  12. Suchan Chae & Paul Heidhues, 2001. "Nash Bargaining Solution with Coalitions and The Joint Bargaining Paradox," CIG Working Papers FS IV 01-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  13. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  14. Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 125-34, June.
  15. Simon Cowan, 1989. "Trade and Competition Policies for Oligopolies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(3), pages 464-483, September.
  16. Konrad, Kai A., 2000. "Trade contests," Journal of International Economics, Elsevier, vol. 51(2), pages 317-334, August.
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