In a two-stage game with three firms and two countries, we study the profitability of a domestic merger in the context of an international oligopoly game with differentiated products and in a strategic trade policy environment. In contrast to a completely unregulated economy, we show that the domestic merger under Cournot competition is always profitable to the host country irrespective of the degree of product differentiation. Furthermore, it is also profitable to the competing country - hosting one firm only if products are sufficiently differentiated. Under Bertrand competition the merger is always profitable to both countries independently of the product range rivalry. But in a strategic trade environment it is more profitable to the country in which the merger occurs than to the other country.
- D43: Oligopoly and Other Forms of Market Imperfection
- F12: Models of Trade with Imperfect Competition and Scale Economies • Fragmentation
- F13: Trade Policy • International Trade Organizations
- L13: Oligopoly and Other Imperfect Markets
Michel Cavagnac, and Guillaume Cheikbossian, “Trade Policy, Mergers, and Product Differentiation”, Journal of Institutional and Theoretical Economics, vol. 171, n. 2, 2015, pp. 330–354.