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Welfare Effect of Mergers and Trade Liberalization

Author

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  • Ray Chaudhuri, A.

    (Tilburg University, School of Economics and Management)

  • Benchekroun, H.

Abstract

In a two-country model where firms behave à la Cournot, we show that marginal and non-marginal trade liberalization have different effects on the social desirability of horizontal mergers. Marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. In the neighborhood of free trade, for sufficiently low cost savings from merger, trade liberalization increases the desirability of merger whilst decreasing the profitability, implying that mergers should be actively encouraged by competition authorities. Furthermore, we identify ranges of tariff levels for which, if trade liberalization increases (decreases) the desirability of merger, it necessarily increases (decreases) its profitability.
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Suggested Citation

  • Ray Chaudhuri, A. & Benchekroun, H., 2008. "Welfare Effect of Mergers and Trade Liberalization," Other publications TiSEM f4fc90b4-b57f-4ad0-a4bd-3, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:f4fc90b4-b57f-4ad0-a4bd-3b7c642fa132
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    References listed on IDEAS

    as
    1. Martin Richardson, 2017. "Trade and Competition Policies: Concordia Discors?," World Scientific Book Chapters, in: Dimensions of Trade Policy, chapter 11, pages 221-242, World Scientific Publishing Co. Pte. Ltd..
    2. Joao Ricardo Faria & Halis Murat Yildiz, 2005. "Trade Liberalization, Nature of Mergers and Employment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 43-63.
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    7. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 212-225, May.
    8. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
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    10. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January.
    11. Hassan Benchekroun & Amrita Ray Chaudhuri, 2006. "Trade Liberalization and the Profitability of Mergers: a Global Analysis," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 941-957, November.
    12. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
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    More about this item

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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