Cross-border Mergers and Privatization

We construct a tractable open economy general equilibrium model of a mixed oligopoly. Our model is then applied to capture the incentives for and implications of cross-border horizontal mergers and trade in the presence of a public firm. Absent any possibility of cross-border mergers, an increase in the degree of privatization will result in a shrinking of the extensive margins of trade. Cross-border mergers will mitigate, by aligning specialization toward the direction of comparative advantage, the effect of privatization on the extensive margins of trade. Allowing firms to move sequentially will magnify the effect that cross-border mergers have on the extensive margins of trade: the magnification effect will be larger when the private firms lead than it will be if the private firms follow..