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The trade and welfare effects of mergers in space

  • Egger, Hartmut
  • Egger, Peter

This paper analyzes the consequences of cross-border mergers in a spatial framework, thereby distinguishing three channels of influence: a price increase due to the elimination of product market competition, an adjustment in plant location which reduces overall transportation cost expenditures, and a harmonization in production costs due to a technology transfer within the firm. The analysis illustrates that cross-border mergers raise world welfare over its level in an already open economy with free trade but no foreign investment. In particular, larger countries benefit from the additional investment opportunities, while smaller countries may lose, if the pre-merger production cost differential across firms is negligible and/or a post-merger technology transfer across production sites is infeasible. Furthermore, the analysis provides novel insights into the trade pattern effects of a merger. One important result in this respect is that an adjustment of plant location in space can reverse the direction of (net) trade flows between two countries.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 40 (2010)
Issue (Month): 4 (July)
Pages: 210-220

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Handle: RePEc:eee:regeco:v:40:y:2010:i:4:p:210-220
Contact details of provider: Web page: http://www.elsevier.com/locate/regec

References listed on IDEAS
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  1. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1229-1257.
  2. Brouwer, A.E. & Mariotti, I. & Ommeren, J.N. van, 2003. "The firm relocation decision: an empirical investigation," Serie Research Memoranda 0023, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  3. Hartmut Egger & Peter Egger, 2004. "Outsourcing and Trade in a Spatial World," CESifo Working Paper Series 1349, CESifo Group Munich.
  4. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
  5. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
  6. Tharakan, Joe & Thisse, Jacques-François, 2001. "The Importance of Being Small. Or When Countries are Areas and not Points," CEPR Discussion Papers 2938, C.E.P.R. Discussion Papers.
  7. Shachmurove, Yochanan & Spiegel, Uriel, 1995. "On Nations' Size and Transportation Costs," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 235-43, June.
  8. Andreea Cosnita, 2005. "Horizontal mergers in the circular city: a note," Economics Bulletin, , vol. 12(7), pages 1-10.
  9. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 212-225, 05.
  10. Huck, Steffen & Konrad, Kai A., 2001. "Merger profitability and trade policy
    [Fusionen und Handelspolitik]
    ," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-12, Social Science Research Center Berlin (WZB).
  11. Long, Ngo Van & Vousden, Neil, 1995. "The Effects of Trade Liberalization on Cost-Reducing Horizontal Mergers," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 141-55, June.
  12. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
  13. Sourafel Girma & Holger Görg, 2007. "Multinationals' Productivity Advantage: Scale Or Technology?," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 350-362, 04.
  14. Alexander Hijzen & Holger G�rg & Miriam Manchin, 2006. "Cross-border mergers and acquisitions and the role of trade costs," European Economy - Economic Papers 242, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  15. repec:ebl:ecbull:v:12:y:2005:i:7:p:1-10 is not listed on IDEAS
  16. Posada, Pedro & Straume, Odd Rune, 2002. "Merger, partial collusion and relocation," Working Papers in Economics 23/02, University of Bergen, Department of Economics.
  17. repec:bla:restud:v:75:y:2008:i:2:p:529-557 is not listed on IDEAS
  18. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
  19. James R. Markusen & Anthony J. Venables, 1996. "The Theory of Endowment, Intra-Industry, and Multinational Trade," NBER Working Papers 5529, National Bureau of Economic Research, Inc.
  20. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
  21. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December.
  22. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  23. Volker Nocke & Stephen Yeaple, 2004. "An Assignment Theory of Foreign Direct Investment," PIER Working Paper Archive 05-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  24. George Norman & Lynne Pepall, 2000. "Profitable Mergers in a Cournot Model of Spatial Competition," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 667-681, January.
  25. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
  26. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
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