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Cross-Border Mergers as Instruments of Comparative Advantage

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  • J. Peter Neary

Abstract

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital-market liberalization. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. As a result, trade liberalization can trigger international merger waves, in the process encouraging countries to specialize and trade more in accordance with comparative advantage. With symmetric countries, welfare is likely to rise, though the distribution of income always shifts towards profits. Copyright 2007, Wiley-Blackwell.

Suggested Citation

  • J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1229-1257.
    • Handle: RePEc:oup:restud:v:74:y:2007:i:4:p:1229-1257
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2007.00466.x
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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F10 - International Economics - - Trade - - - General

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