Merger Policies and Trade Liberalization

This paper is about the interactions between what is traditionally considered trade policy and a narrow but important aspect of competition policy, namely merger policy. We focus on links between merger policies and trade liberalization. Interpreting merger policy as a choice of degree of industrial concentration, we investigate how the merger policy that is optimal from the point of view of an individual country is affected by restrictions on the use of tariffs and export subsidies. Two general points emerge. First, merger policies are indeed associated with international externalities in open economies. And second, we argue that one should not expect to find any particular relationship between trade policy and merger policy. In particular, there seems to be no presumption that international trade liberalization induces countries to pursue merger policies that have more of a beggar-thy-neighbor flavor.