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Mergers in Nonrenewable Resource Oligopolies and Environmental Policies

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  • Hassan BENCHEKROUN
  • Michèle BRETON
  • Amrita RAY CHAUDHURI

Abstract

We examine the profitability of horizontal mergers within nonrenewable resource industries, which account for a large proportion of merger activities worldwide. Each firm owns a private stock of the resource and uses open loop strategies when choosing its extraction path. We analytically show that even a small merger (merger of 2 firms) is always profitable when the resource stock owned by each firm is small enough. In the case where pollution is generated by the industry’s activity, we show that an environmental policy that increases firms’ production cost or reduces the price received by firms can deter a merger. This speeds up the industry’s extraction and thereby causes emissions to occur earlier than under a laissez-faire scenario.

Suggested Citation

  • Hassan BENCHEKROUN & Michèle BRETON & Amrita RAY CHAUDHURI, 2018. "Mergers in Nonrenewable Resource Oligopolies and Environmental Policies," Cahiers de recherche 18-2018, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:18-2018
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    More about this item

    JEL classification:

    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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