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Cross-Border Mergers as Instruments of Comparative Advantage

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  • Neary, Peter

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 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.

Suggested Citation

  • Neary, Peter, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," CEPR Discussion Papers 4325, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4325
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    JEL classification:

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

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