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Horizontal Merger under Strategic Tax Policy

Author

Listed:
  • Chih-Chen Liu
  • Arijit Mukherjee
  • Leonard F.S. Wang

Abstract

We show that the presence of a strategic tax policy increases the incentive for a horizontal merger compared to the situation with no tax policy. Thus, we point towards a new factor, viz., strategic tax policy, for increasing the incentive for a horizontal merger that has been ignored in the existing literature. In contrast to the usual belief, we also show that a horizontal merger may benefit the consumers and the society.

Suggested Citation

  • Chih-Chen Liu & Arijit Mukherjee & Leonard F.S. Wang, 2014. "Horizontal Merger under Strategic Tax Policy," CESifo Working Paper Series 4996, CESifo.
    • Handle: RePEc:ces:ceswps:_4996
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    References listed on IDEAS

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    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.
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    4. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
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    9. Yu-Bong Lai, 2004. "Trade liberalization, consumption externalities and the environment," Economics Bulletin, AccessEcon, vol. 17(5), pages 1-9.
    10. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    11. Liu, Chih-Chen & Wang, Leonard F.S., 2015. "Leading merger in a Stackelberg oligopoly: Profitability and consumer welfare," Economics Letters, Elsevier, vol. 129(C), pages 1-3.
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    13. 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.
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    17. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    18. Mukherjee, Arijit & Pennings, Enrico, 2006. "Tariffs, licensing and market structure," European Economic Review, Elsevier, vol. 50(7), pages 1699-1707, October.
    19. Leahy, Dermot & Montagna, Catia, 2001. "Strategic Trade Policy with Heterogeneous Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 53(3), pages 177-182, July.
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    Cited by:

    1. 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.
    2. Leurent, Martin & Jasserand, Frédéric & Locatelli, Giorgio & Palm, Jenny & Rämä, Miika & Trianni, Andrea, 2017. "Driving forces and obstacles to nuclear cogeneration in Europe: Lessons learnt from Finland," Energy Policy, Elsevier, vol. 107(C), pages 138-150.
    3. Lei Bao & Wenshi Yu, 2022. "Efficiency-Enhancing Horizontal Mergers in Spatial Competition with Network Externalities," Mathematics, MDPI, vol. 10(18), pages 1-13, September.
    4. Hao Cheng & Xiaoting Wu & Chenhang Zeng, 2024. "Can cross-holdings benefit consumers?," Journal of Economics, Springer, vol. 141(3), pages 245-273, April.
    5. Dusanee Kesavayuth & Sang-Ho Lee & Vasileios Zikos, 2018. "Merger and Innovation Incentives in a Differentiated Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 25(2), pages 207-221, May.
    6. Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2020. "Subsidy policies and vertical integration in times of crisis: Can two virtues produce an evil?," MPRA Paper 104413, University Library of Munich, Germany.

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    More about this item

    Keywords

    merger; tax policy; social welfare;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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