IDEAS home Printed from https://ideas.repec.org/a/qua/journl/v9y2012i2p61-80.html
   My bibliography  Save this article

Political contributions, subsidy and mergers

Author

Listed:
  • M. Ozgur Kayalica

    (Istanbul Technical University)

  • Rafael Salvador Espinosa Ramirez

    (Universidad de Guadalajara)

Abstract

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.

Suggested Citation

  • M. Ozgur Kayalica & Rafael Salvador Espinosa Ramirez, 2012. "Political contributions, subsidy and mergers," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 9(2), pages 61-80, Julio-Dic.
    • Handle: RePEc:qua:journl:v:9:y:2012:i:2:p:61-80
    as

    Download full text from publisher

    File URL: http://econoquantum.cucea.udg.mx/index.php/EQ/article/view/149
    Download Restriction: no
    File URL: http://econoquantum.cucea.udg.mx/index.php/EQ/issue/view/22
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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 141-155, June.
    2. Janeba, Eckhard, 1995. "Corporate income tax competition, double taxation treaties, and foreign direct investment," Journal of Public Economics, Elsevier, vol. 56(2), pages 311-325, February.
    3. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
    4. Sajal Lahiri & Yoshiyasu Ono, 1998. "Tax policy on foreign direct investment in the presence of cross-hauling," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(2), pages 263-279, June.
    5. Magee,Stephen P. & Brock,William A. & Young,Leslie, 1989. "Black Hole Tariffs and Endogenous Policy Theory," Cambridge Books, Cambridge University Press, number 9780521377003, January.
    6. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    7. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    8. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
    9. James R. Markusen & Anthony J. Venables, 2021. "Multinational firms and the new trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 3, pages 47-67, World Scientific Publishing Co. Pte. Ltd..
    10. Hassan Benchekroun & Amrita Ray Chaudhuri, 2006. "Trade Liberalization and the Profitability of Mergers: a Global Analysis," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 941-957, November.
    11. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    12. David R. Collie, 2003. "Mergers and Trade Policy under Oligopoly," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 55-71, February.
    13. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    14. M. Ozgur Kayalica & Sajal Lahiri, 2007. "Domestic lobbying and foreign direct investment. The role of policy instruments," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 16(3), pages 299-323.
    15. Ross, Thomas W., 1988. "On the price effects of mergers with freer trade," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 233-246.
    16. Salvatore,Dominick (ed.), 1993. "Protectionism and World Welfare," Cambridge Books, Cambridge University Press, number 9780521414555.
    17. Ignatius J. Horstmann & James R. Markusen, 2021. "Endogenous market structures in international trade (natura facit saltum)," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 2, pages 25-45, World Scientific Publishing Co. Pte. Ltd..
    18. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    19. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    20. Salvatore,Dominick (ed.), 1993. "Protectionism and World Welfare," Cambridge Books, Cambridge University Press, number 9780521424899.
    21. Itagaki, Takao, 1979. "Theory of the Multinational Firm: An Analysis of Effects of Government Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 437-448, June.
    22. Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
    23. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494, Elsevier.
    24. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters, in: Import Competition and Response, pages 223-244, National Bureau of Economic Research, Inc.
    25. John Goddard & Philip Molyneux & Tim Zhou, 2012. "Bank mergers and acquisitions in emerging markets: evidence from Asia and Latin America," The European Journal of Finance, Taylor & Francis Journals, vol. 18(5), pages 419-438, May.
    26. Neven, Damien J, 1992. "Regulatory Reform in the European Community," American Economic Review, American Economic Association, vol. 82(2), pages 98-103, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kayalica, Ozgur M. & Espinosa-Ramirez, Rafael S., 2009. "Brotherhood of competition: Foreign Direct Investment and domestic mergers," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 63-69, January.
    2. Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series 166, Research Institute for Economics & Business Administration, Kobe University.
    3. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
    4. Müller, Thomas, 2003. "The Multinational Enterprise," Munich Dissertations in Economics 799, University of Munich, Department of Economics.
    5. Pravin Krishna & Devashish Mitra, 2003. "Reciprocated Unilateralism in Trade Policy: An Interest-Group Approach," NBER Working Papers 9631, National Bureau of Economic Research, Inc.
    6. Ulus Aysegul & Yildiz Halis M., 2012. "On the Relationship between Tariff Levels and the Nature of Mergers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-40, December.
    7. Fikru, Mahelet G. & Lahiri, Sajal, 2014. "Cross-border mergers with flexible policy regime: The role of efficiency and market size," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 58-70.
    8. Lynda Porter, 2003. "Cost Asymmetry and Taxation - Implications for Multinational Activity," Working Papers 200311, School of Economics, University College Dublin.
    9. Katayama, Seiichi & Lahiri, Sajal & Tomiura, Eiichi, 2011. "Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis," Japan and the World Economy, Elsevier, vol. 23(3), pages 170-177.
    10. Enrico Marvasi, 2013. "Protection for Sale, Monopolistic Competition and Variable Markups," Working Papers - Economics wp2013_11.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    11. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, September.
    12. K. H. O'Rourke & R. Sinnott, 2001. "The Determinants of Individual Trade Policy Preferences: International Survey Evidence," Trinity Economics Papers 200110, Trinity College Dublin, Department of Economics.
    13. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2011. "Do interest groups affect US immigration policy?," Journal of International Economics, Elsevier, vol. 85(1), pages 114-128, September.
    14. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January.
    15. Arijit Mukherjee & Umut Erksan Senalp, 2021. "Firm‐productivity and cross border merger," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 838-859, September.
    16. Dutt, Pushan & Mitra, Devashish, 2009. "Explaining Agricultural Distortion Patterns : The Roles of Ideology, Inequality, Lobbying and Public Finance," Agricultural Distortions Working Paper Series 50299, World Bank.
    17. Andréa M. Maechler, 2000. "The Politics of Trade Liberalization in the Presence of FDI Incentives," Working Papers 00.09, Swiss National Bank, Study Center Gerzensee.
    18. Nuno Limão & Arvind Panagariya, 2003. "Why is there an Anti-trade Bias in Trade Policy?," International Trade 0310003, University Library of Munich, Germany.
    19. Eicher, Theo & Kang, Jong Woo, 2005. "Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals," Journal of Development Economics, Elsevier, vol. 77(1), pages 207-228, June.
    20. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2006. "Foreign Lobbies and U.S. Trade Policy," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 563-571, August.

    More about this item

    Keywords

    Foreign Direct Investment; Mergers; Lobby;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:qua:journl:v:9:y:2012:i:2:p:61-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sandra Ivett Portugal Padilla (email available below). General contact details of provider: https://edirc.repec.org/data/dmudgmx.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.