The attempted merger between General Electric and Honeywell, a case study of transatlantic conflict
\cf1\f1 This paper analyzes how State aid affects and distorts competition and trade within and across jurisdictions. We identify the circumstances in which state aid is likely to involve the largest distortions. In the context of the paper distortion of competition" is interpreted as the effect on rivals\f2\rquote\f1 profits. We consider three types of state intervention, namely subsidies which affect marginal cost, entry and quality and analyse whether particular market characteristics are robust indicators of the magnitude of the distortions. We obtain the following results: (i) it appears that concentration is a fairly robust indicator; (ii) A high degree of substitution across differentiated products is not a robust indicator of the magnitude of the distortions. Its effect depends on the type of state intervention; (iii) The substitution among domestic products may have opposite effects respectively on domestic and foreign firms. In particular, when the market is not concentrated and state aid takes the form of a production subsidy, a stronger substitution among domestic products will reduce the distortions felt by the foreign firm (but increase that felt by domestic rivals); Finally, (iv) the paper demonstrates that the impact of selective State aid on market prices and competitors can depend on the particular characteristics of the market JEL Classification numbers: K21; L10; L40
|Date of creation:||01 Nov 2005|
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- Beath,John & Katsoulacos,Yannis, 1991.
"The Economic Theory of Product Differentiation,"
Cambridge University Press, number 9780521335263, November.
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- Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2002.
"The Political Economy of European Merger Control: Evidence using Stock Market Data,"
CIG Working Papers
FS IV 02-34, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Tomaso Duso & Damien J. Neven & Lars-Hendrik RÃ¶ller, 2007. "The Political Economy of European Merger Control: Evidence using Stock Market Data," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 455-489.
- Duso, Tomaso & Neven, Damien J & Röller, Lars-Hendrik, 2003. "The Political Economy of European Merger Control: Evidence Using Stock Market Data," CEPR Discussion Papers 3880, C.E.P.R. Discussion Papers.
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