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Cross-Border Mergers as Instruments of Comparative Advantage

  • Neary, J. Peter

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital market liberalisation. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. With symmetric countries, welfare may rise or fall, though the distribution of income always shifts towards profits. The model implies that trade liberalisation can trigger international merger waves, in the process encouraging countries to specialise and trade more in accordance with comparative advantage.

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Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 34.

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Date of creation: 2004
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Handle: RePEc:zbw:cegedp:34
Contact details of provider: Postal: Platz der Göttinger Sieben 3, 37073 Göttingen
Web page: http://www.cege.wiso.uni-goettingen.de/

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  13. Olivier Bertrand & Habib Zitouna, 2006. "Trade Liberalization and Industrial Restructuring: The Role of Cross-Border Mergers and Acquisitions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 479-515, 06.
  14. J.Peter Neary, 2003. "Globalisation and Market Structure," DNB Staff Reports (discontinued) 100, Netherlands Central Bank.
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  17. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  18. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June.
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  31. 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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