Trade Policy, Mergers, and Product Differentiation

Michel Cavagnac, and Guillaume Cheikbossian


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.


Strategic trade policy; mergers; product differentiation; Cournot competition; Bertrand competition;

JEL codes

  • 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, Merger, Product Differentiation, and Trade Policy, TSE Working Paper, n. 13-399, April 2013.

Published in

Journal of Institutional and Theoretical Economics, vol. 171, n. 2, 2015, pp. 330–354