Partial Cross-ownership and Merger Control in International Trade

Given the rising trend of cross-ownership and mergers and acquisitions, this study builds an oligopoly model with general demand to analyze how partial cross-ownership (PCO) affects market competition and merger control policies in international trade. In our model, ad valorem tariffs are imposed on imports. If the extent of PCO is sufficiently large, international PCO becomes more anti-competitive than domestic PCO, resulting in a higher price. This contrasts with previous results indicating that an international merger is always less anti-competitive than a domestic merger. Additionally, international PCO can result in a higher price than both domestic and international mergers, even without merger synergy effects. Moreover, when competition authorities employ a consumer surplus standard as the merger control policy, pre-merger PCO facilitates approval of the subsequent merger. Trade liberalization encourages the approval of domestic mergers but blocks international mergers from being approved. By way of policy implications, these results suggest that competition authorities should regulate international PCO more heavily.