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Footloose foreign firm and profitable domestic merger

  • Beladi, Hamid
  • Mukherjee, Arijit

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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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 83 (2012)
Issue (Month): 2 ()
Pages: 186-194

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Handle: RePEc:eee:jeborg:v:83:y:2012:i:2:p:186-194
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