IDEAS home Printed from https://ideas.repec.org/p/hit/hiasdp/hias-e-53.html
   My bibliography  Save this paper

Tariffs, R&D, and Two Merger Policies

Author

Listed:
  • ARZANDEH, Mehdi
  • GUNAY, Hikmet

Abstract

In an international Cournot oligopoly model, we compare two different merger policies when firms are merging endogenously and engage in research and development (R&D). In the benchmark model, countries set optimal tariff levels but do not have merger policy. If ex-ante identical firms merge internationally, they have an ex-post cost advantage over the outsiders due to tariff savings. This gives the merger an incentive to increase its R&D investment, which increases the cost dispersion further; therefore, the merger paradox, where each firm wants to be an outsider, disappears when R&D is efficient. As a result, we find different equilibrium market structures depending on the efficiency of R&D. In the second part, we compare two different merger policies, one that puts emphasis on welfare (roughly the Canadian merger policy) and another one that puts emphasis on consumer surplus (roughly the European Union’s merger policy). We show that under the “welfare-increasing” merger policy, monopoly is the equilibrium market structure when R&D is very efficient. This explains why a merger, which created a monopoly, was approved in Canada. As R&D becomes less efficient, the equilibrium market structures become less concentrated under the two different merger policies. Each merger policy can be global welfare maximizing depending on the efficiency of R&D; however, the “consumer-surplus-increasing” merger policy is optimal for a wider range of parameters.

Suggested Citation

  • ARZANDEH, Mehdi & GUNAY, Hikmet, 2017. "Tariffs, R&D, and Two Merger Policies," Discussion paper series HIAS-E-53, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
  • Handle: RePEc:hit:hiasdp:hias-e-53
    as

    Download full text from publisher

    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/28800/1/070_hiasDP-E-53.pdf
    Download Restriction: no

    More about this item

    Keywords

    Competition Policy; Merger Policy; R&D; Endogenous Mergers; Tariff; Trade; Policy; Cournot oligopoly; Merger Paradox;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hit:hiasdp:hias-e-53. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Resources Section, Hitotsubashi University Library). General contact details of provider: http://edirc.repec.org/data/ashitjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.