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Footloose foreign firm and profitable domestic merger

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  • Beladi, Hamid
  • Mukherjee, Arijit

Abstract

We provide a new explanation for a profitable horizontal merger between Cournot oligopolists with symmetric constant returns to scale technologies and homogeneous goods. We show that a merger can be profitable if it prevents a foreign firm from undertaking FDI. Our result is due to the effect of a merger on the foreign firm's strategic investment decision, which is different from the well-known factors, such as the synergic benefit, product differentiation and vertical pricing, which are extensively discussed in the literature. A profitable domestic merger in our analysis reduces domestic welfare.

Suggested Citation

  • Beladi, Hamid & Mukherjee, Arijit, 2012. "Footloose foreign firm and profitable domestic merger," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 186-194.
    • Handle: RePEc:eee:jeborg:v:83:y:2012:i:2:p:186-194
    DOI: 10.1016/j.jebo.2012.05.007
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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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