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Political contributions, subsidy and mergers

  • M. Ozgur Kayalica


    (Istanbul Technical University)

  • Rafael Salvador Espinosa Ramirez

    (Universidad de Guadalajara)

We examine, in a oligopolistic partial equilibrium model, the effects of mergers and internal lobbies in shaping national subsidy policies. Domestic and foreign firms compete in the market for a homogeneous good in a host country, then the optimal output of the firms can be affected ambiguously by the government subsidy policy in the host country. Domestic firms offer political contributions to the government, that are tied to the government’s policy decision. The government sets the optimal policy maximizing a weighted sum of total contributions and aggregate social welfare taking into account merger of domestic firms as a competitive response.

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Article provided by Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia. in its journal EconoQuantum, Revista de Economia y Negocios.

Volume (Year): 9 (2012)
Issue (Month): 2 (Julio-Diciembre)
Pages: 61-80

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Handle: RePEc:qua:journl:v:9:y:2012:i:2:p:61-80
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