International Merger Policy Coordination In Complementary Goods Markets

We analyze a simple model of merger policy coordination between two trading countries. We find that two countries producing complementary products are likely to face a prisoners' dilemma situation in implementing their merger policy. The policy-makers in the two countries tend to allow a merger proposed by their domestic firms, even though their welfare would be larger when they coordinate on not allowing merger in each country. This implies that two countries can benefit from coordination on merger policy. We extend the analysis to allow for import tariffs, more than two components, and independent goods, respectively. Lastly, it is shown that policy coordination can be achieved by granting each country a veto power to a merger in other countries.