Working Paper: CEPR ID: DP5601
Authors: Eileen Fumagalli; Helder Vasconcelos
Abstract: This paper proposes a sequential merger formation game with cost synergies to study how trade policy can influence firms' choice between domestic and cross-border mergers in an international Cournot oligopoly. We find that the equilibrium market structure depends heavily on: (i) the level of trade costs; and (ii) whether or not active antitrust authorities are incorporated within the sequential merger game. In addition, it is shown that whenever mergers occur in equilibrium, they occur in waves and the merger wave comprises at least one cross-border merger. We also analyze how the equilibrium market structures are affected by the presence of lobbying efforts.
Keywords: Endogenous mergers; Merger waves; Tariff-jumping FDI
JEL Codes: F10; F13; L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade costs (F19) | merger decisions (G34) |
| active antitrust authorities (L40) | merger proposals (G34) |
| trade costs (F19) | equilibrium market structure (D41) |
| active antitrust authorities (L40) | equilibrium market structure (D41) |
| trade costs (F19) | no mergers in equilibrium (D59) |
| mergers occur in waves (G34) | cross-border mergers (F23) |