Yildiz, Halis Murat and Ulus, Aysegul (2011): On the relationship between tariff levels and the nature of mergers.
Download (243kB) | Preview
This paper employs an endogenous merger formation approach in a two-country oligopoly model of trade to examine the international linkages between the nature of mergers and tariff levels. Firms sell differentiated products and compete in a Bertrand fashion in product markets. We find two effects playing key roles in determining equilibrium market structure: the tariff saving effect and the protection gain effect. The balance between these two effects implies that, when foreign country practices free trade, unilateral tariff reduction by a domestic country yields international mergers irrespective of the substitutability levels. By contrast, when foreign tariffs are sufficiently high and products are close substitutes, national mergers obtain in the equilibrium. Therefore, the implications of unilateral trade liberalization on the equilibrium market structure depends on the trade regime in foreign country especially when products are close substitutes. Unlike this asymmetric result of unilateral trade liberalization, we find that when bilateral tariffs are sufficiently low, international mergers arise. These results fit well with the fact that global trade liberalization has been accompanied by an increase in international merger activities. Finally, from a welfare perspective, we show that international mergers are preferable to national mergers and thus social and private merger incentives become aligned together as trade gets bilaterally liberalized.
|Item Type:||MPRA Paper|
|Original Title:||On the relationship between tariff levels and the nature of mergers|
|Keywords:||international mergers, national mergers, tariff saving, protection gain|
|Subjects:||F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation
|Depositing User:||Halis Murat Yildiz|
|Date Deposited:||25 Nov 2011 20:45|
|Last Modified:||27 Sep 2016 16:52|
Barros, P., and L. Cabral, (1994) "Merger Policies in Open Economies," European Economic Review 38, 1041-1055.
Benchekroun, H., (1994) "The closed-loop effect and the profitability of horizontal mergers," Canadian Journal of Economics. 36 (3) 546-565.
Bjorvatn, K., (2003) "Economic integration and the profitability of cross-border M&A," Manuscript, Norwegian School of Economics and Business Administration (NHH), Bergen.
Chatterjee, K., B. Dutta, D. Ray, and K. Sengupta, (1993) "A Noncooperative Theory of Coalitional Bargaining," Review of Economic Studies 60, 463-477.
Cheung, F.K., (1992) "Two remarks on the equilibrium analysis of horizontal mergers," Economics Letters 40 (1992), 119--123.
Collie, D., (2003) "Mergers and Trade Policy under Oligopoly," Review of International Economics 11 55-71.
Deneckere, R., and C. Davidson, (1985) "Incentives to Form Coalitions with Bertrand Competition," Rand Journal of Economics 16, 473-486.
Dockner, E., and A. Gaunersdorfer, (2001) "On the profitability of horizontal mergers in industries with dynamic competition," Japan and the World Economy 13, 195--216.
Dunning, J., (1977) "Location of Economic Activity and MNE: a Search for an Eclectic Approach, in Ohlin, B., Hesselberger, P., Wijkam, P. M. (eds.) International Allocation of Economic Activity (London: Macmillan.
Faria, J. R., and H.M. Yildiz, (2005) "Trade Liberalization, Nature of Mergers and Employment," Journal of International Trade and Economic Development, 14(1), 43-63.
Farrell, J., and C. Shapiro, (1990) "Horizontal Mergers: An Equilibrium Analysis," American Economic Review 80, 107-126.
Head, K., and J. Ries, (1997) "International Mergers and Welfare Under Decentralized Competition Policy," Canadian Journal of Economics 30(4), 1104-1123.
Horn, H., and J. Levinsohn, (2001) "Merger Policies and Trade Liberalization," Economic Journal 111, 244-276.
Horn, H., and L. Persson, (2001a) "Endogenous Mergers in Concentrated Markets," International Journal of Industrial Organisation 19(8), 1213-1244.
Horn, H., and L. Persson, (2001b) "The Equilibrium Ownership of an International Oligopoly," Journal of International Economics 53, 307-333.
Horstman, I. J., and J. R. Markusen, (1992) "Endogenous Market Structures in International Trade (natura facit saltum)," Journal of International Economics 32, 109-129.
Kamien, M. I., and I. Zang, (1990) "The Limits of Monopolization Through Acquisition," Quarterly Journal of Economics 105, 465-99.
Levin, D., (1990) "Horizontal mergers: the 50-percent benchmark," American Economic Review 80, 1238--45. Markusen J. R., and A. J. Venables, (1998) "Multinational Firms and The New Trade Theory," Journal of International Economics 46(2), 183-203.
Markusen, J. R., (1995) "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspective 9, 169-189.
Norbäck, P.-J., and L. Persson, (2005) "Privatization and Foreign Competition," Journal of International Economics 62, 409-416.
Norbäck, P.-J., and L. Persson, (2004) "Privatization Policy in an International Oligopoly," Forthcoming, Economica.
Perry, M. K., and R. H. Porter, (1985) "Oligopoly and the Incentive for Horizontal Merger," American Economic Review 75(1), 219-227.
Qiu, Larry D., and Wen Zhou, (2006) "International mergers: Incentives and welfare" Journal of International Economics 68, 38-58.
Ray, D., and R. Vohra, (1999) "A Theory of Endogenous Coalition Structure," Games and Economic Behavior 26, 286-336.
Richardson, M., (1999) "Trade and Competition Policies: Concordia Discors?" Oxford Economic Papers 51(4), 649-664.
Salant, S. W., S. Switzer and R. J. Reynolds, (1983) "Losses from Horizontal Merger: the Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," Quarterly Journal of Economics 48, 185-199.
Shubik, M., (1980) Market Structure and Behavior. (Cambridge: Harvard University Press).
UNCTAD, United Nations Conference on Trade and Development, World Investment Report Geneva, 2002.