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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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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
Date of revision:
Handle: RePEc:nip:nipewp:10/2008
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  1. 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.
  2. Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 98, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Horn, Henrik & Persson, Lars, 1996. "Endogenous Mergers in Concentrated Markets," CEPR Discussion Papers 1544, C.E.P.R. Discussion Papers.
  4. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," Working Paper Series 515, Research Institute of Industrial Economics.
  5. Haufler, Andreas & Schulte, Christian, 2007. "Merger Policy and Tax Competition," Discussion Papers in Economics 2074, University of Munich, Department of Economics.
  6. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2003. "National versus International Mergers in Unionised Oligopoly," CEPR Discussion Papers 4040, C.E.P.R. Discussion Papers.
  7. 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.
  8. Girma, Sourafel & Gorg, Holger, 2007. "Evaluating the foreign ownership wage premium using a difference-in-differences matching approach," Journal of International Economics, Elsevier, vol. 72(1), pages 97-112, May.
  9. Rita Almeida, 2004. "The labor market effects of foreign-owned firms," Policy Research Working Paper Series 3300, The World Bank.
  10. Hyytinen, Ari & Steen, Frode & Toivanen, Otto, 2010. "Cartels Uncovered," CEPR Discussion Papers 7761, C.E.P.R. Discussion Papers.
  11. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2005. "Can deunionization lead to international outsourcing?," Working Papers in Economics 15/05, University of Bergen, Department of Economics.
  12. Neary, J. Peter, 2009. "Trade costs and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 207-218, March.
  13. 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.
  14. McGuckin, Robert H. & Nguyen, Sang V., 2001. "The impact of ownership changes: a view from labor markets," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 739-762, April.
  15. Gugler, Klaus & Yurtoglu, B. Burcin, 2004. "The effects of mergers on company employment in the USA and Europe," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 481-502, April.
  16. Barros, Pedro P. & Cabral, Luis, 1994. "Merger policy in open economies," European Economic Review, Elsevier, vol. 38(5), pages 1041-1055, May.
  17. Lommerud, Kjell Erik & Meland, Frode & Sørgard, Lars, 2001. "Unionized Oligopoly, Trade Liberalization and Location Choice," CEPR Discussion Papers 2990, C.E.P.R. Discussion Papers.
  18. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  19. Norback, Pehr-Johan & Persson, Lars, 2007. "Investment liberalization -- Why a restrictive cross-border merger policy can be counterproductive," Journal of International Economics, Elsevier, vol. 72(2), pages 366-380, July.
  20. Stähler, Frank & Ryan, Michael & Raff, Horst, 2007. "The Choice of Market Entry Mode: Greenfield Investment, M&A and Joint Venture," Economics Working Papers 2007,19, Christian-Albrechts-University of Kiel, Department of Economics.
  21. Huck, Steffen & Konrad, Kai A., 2001. "Merger profitability and trade policy
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  22. 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.
  23. Marie-Françoise Calmette, 2008. "The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 874-892, November.
  24. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-93, November.
  25. Haufler, Andreas & Nielsen, Søren Bo, 2005. "Merger Policy to Promote Global Players? A Simple Model," Discussion Papers in Economics 666, University of Munich, Department of Economics.
  26. 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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  28. repec:tpr:qjecon:v:98:y:1983:i:2:p:185-99 is not listed on IDEAS
  29. Meland, F., 2000. "Unions and Market Integrations in Contests," Norway; Department of Economics, University of Bergen 1600, Department of Economics, University of Bergen.
  30. Walde, Klaus & Wei[ss], Pia, 2007. "International competition, downsizing and wage inequality," Journal of International Economics, Elsevier, vol. 73(2), pages 396-406, November.
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