Footloose foreign firm and profitable domestic merger
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.
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Volume (Year): 83 (2012)
Issue (Month): 2 ()
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