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Cross-Border Mergers & Acquisitions Policy in Service Markets

We provide facts showing that in service markets: (i) restrictions on foreign direct investment (FDI) are under reform, (ii) cross-border Mergers & Acquisitions dominate as the entry mode of FDI, and (iii) there is often a high market concentration. Based on these facts, we present a model for analyzing cross-border M&A policy in liberalized service markets taking into account efficiency and market power effects. Our findings suggest that a merger policy, but not a discriminatory policy towards foreigners, seems warranted. Moreover, policies ensuring competition for domestic target firms seem warranted. In this vein, harmonization of the EU takeover regulations may particularly benefit assets owners in countries with many target firms.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 743.

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Length: 39 pages
Date of creation: 08 Apr 2008
Date of revision:
Handle: RePEc:hhs:iuiwop:0743
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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  1. Heyman, Fredrik & Sjöholm, Fredrik & Gustavsson Tingvall, Patrik, 2006. "Is There Really A Foreign Ownership Wage Premium? Evidence From Matched Employer-Employee Data," EIJS Working Paper Series 230, The European Institute of Japanese Studies.
  2. 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.
  3. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
  4. Norback, Pehr-Johan & Persson, Lars, 2004. "Privatization and foreign competition," Journal of International Economics, Elsevier, vol. 62(2), pages 409-416, March.
  5. Mikhail Klimenko & Kamal Saggi, 2007. "Technical compatibility and the mode of foreign entry with network externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 176-206, February.
  6. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  7. Norback, Pehr-Johan & Persson, Lars, 2006. "Endogenous asset ownership structures in deregulated markets," European Economic Review, Elsevier, vol. 50(7), pages 1729-1752, October.
  8. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1229-1257.
  9. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Privatization Policy in an International Oligopoly," Working Paper Series 608, Research Institute of Industrial Economics.
  10. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
  11. Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May.
  12. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of Foreign Entry, Technology Transfer, and FDI Policy," CEPR Discussion Papers 2870, C.E.P.R. Discussion Papers.
  13. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
  14. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 212-225, 05.
  15. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
  16. Campa, Jose & Donnenfeld, Shabtai & Weber, Shlomo, 1998. "Market Structure and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 361-80, August.
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