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Trade Policy, Mergers, and Product Differentiation

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  • Michel Cavagnac
  • Guillaume Cheikbossian

Abstract

We analyze the welfare effects of mergers in a strategic trade-policy environment. A merger in one country changes the strategic behavior of all firms in the markets, which in turn modifies the strategic interaction between governments in the policy game. Consequently, the results strongly contrast with those obtained in a laissez-faire economy. Under quantity competition, a merger is always profitable to the host country and can also be profitable to the competing country if products are sufficiently differentiated. Under price competition, a merger is always profitable to both countries --- but it is more profitable to the host country.

Suggested Citation

  • Michel Cavagnac & Guillaume Cheikbossian, 2015. "Trade Policy, Mergers, and Product Differentiation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(2), pages 330-354, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201506)171:2_330:tpmapd_2.0.tx_2-t
    DOI: 10.1628/093245613X14273596659044
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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