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Cross-Border Mergers as Instruments of Comparative Advantage

  • Neary, J Peter

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 liberalisation. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. With symmetric countries, welfare may rise or fall, though the distribution of income always shifts towards profits. The model implies that trade liberalisation can trigger international merger waves, in the process encouraging countries to specialise and trade more in accordance with comparative advantage.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4325.

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Date of creation: Mar 2004
Date of revision:
Handle: RePEc:cpr:ceprdp:4325
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  1. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  2. Flavio Toxvaerd, 2004. "Strategic Merger Waves: A Theory of Musical Chairs," Discussion Paper Series dp359, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  3. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
  4. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market: a General Equilibrium Approach," CEPR Discussion Papers 3526, C.E.P.R. Discussion Papers.
  5. Fauli-Oller, Ramon, 1997. "On merger profitability in a Cournot setting," Economics Letters, Elsevier, vol. 54(1), pages 75-79, January.
  6. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 4(3), pages 381-400, June.
  7. Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
  8. J.Peter Neary, 2003. "Globalisation and Market Structure," DNB Staff Reports (discontinued) 100, Netherlands Central Bank.
  9. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," Harvard Institute of Economic Research Working Papers 1998, Harvard - Institute of Economic Research.
  10. Olivier Bertrand & Habib Zitouna, 2006. "Trade Liberalization and Industrial Restructuring: The Role of Cross-Border Mergers and Acquisitions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 479-515, 06.
  11. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  12. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  13. Ramon Fauli-Oller, 2000. "Takeover Waves," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(2), pages 189-210, 06.
  14. Baldwin, Richard & Ottaviano, Gianmarco, 1998. "Multiproduct Multinationals and Reciprocal FDI Dumping," CEPR Discussion Papers 1851, C.E.P.R. Discussion Papers.
  15. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003. "The effects of mergers: an international comparison," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 625-653, May.
  16. Boyan Jovanovic & Peter L. Rousseau, 2008. "Mergers as Reallocation," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 765-776, November.
  17. Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2003. "Sequential Formation of Coalitions through Bilateral Agreements," Working Papers 84, Barcelona Graduate School of Economics.
  18. 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.
  19. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
  20. Ramon Fauli-Oller, 2000. "Takeover Waves," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 189-210, 06.
  21. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  22. ROBERTS, John & SONNENSCHEIN, Hugo, . "On the foundations of the theory of monopolistic competition," CORE Discussion Papers RP 296, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  23. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
  24. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  25. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
  26. Ramón Faulí-Oller, 1997. "On merger profitability in a cournot setting," Working Papers. Serie AD 1997-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  27. 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.
  28. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers.
  29. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June.
  30. repec:oup:qjecon:v:98:y:1983:i:2:p:185-99 is not listed on IDEAS
  31. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
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