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Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?

Many policy makers seem to prefer domestic alternatives to cross-broder mergers. Can such sentiments make sense? We contruct a model where cross-border mergers drive down union-set wages, where domestic mergers have larger non-labour cost synergies than international ones, and where policy evaluators care more about workers than capital owners. Apparently, the stage is set for national champion policies to be sensible. However, we also introduce the possibility of capital flight in the sense that a domestic firm can physically move its production out of the country. Restrictive cross-border merger policies can then seriously backfire, since they do not necessarily bring about a domestic merger - but capital flight instead.

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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2008/NIPE_WP_10_2008.PDF
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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 10/2008.

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Date of creation: 2008
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Handle: RePEc:nip:nipewp:10/2008
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  1. Almeida, Rita, 2007. "The labor market effects of foreign owned firms," Journal of International Economics, Elsevier, vol. 72(1), pages 75-96, May.
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  16. Andreas Haufler & Søren Bo Nielsen, 2005. "Merger Policy to Promote ‘Global Players’? A Simple Model," CESifo Working Paper Series 1523, CESifo Group Munich.
  17. Raff, Horst & Ryan, Michael & Stähler, Frank, 2009. "The choice of market entry mode: Greenfield investment, M&A and joint venture," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 3-10, January.
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  20. Hyytinen, Ari & Steen, Frode & Toivanen, Otto, 2010. "Cartels Uncovered," Discussion Paper Series in Economics 10/2010, Department of Economics, Norwegian School of Economics.
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  25. Huck, Steffen & Konrad, Kai A., 2001. "Merger profitability and trade policy
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  26. Walde, Klaus & Wei[ss], Pia, 2007. "International competition, downsizing and wage inequality," Journal of International Economics, Elsevier, vol. 73(2), pages 396-406, November.
  27. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
  28. Barros, Pedro P. & Cabral, Luis, 1994. "Merger policy in open economies," European Economic Review, Elsevier, vol. 38(5), pages 1041-1055, May.
  29. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  30. Dhillon, Amrita & Petrakis, Emmanuel, 2002. "A generalised wage rigidity result," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 285-311, March.
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  32. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
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