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The University of Southampton
EconomicsPart of Economic, Social and Political Science

0908 Trade Liberalisation, Market Structure and the Incentive to Merge (M.J. Chalkley & G. Stewart)

Discussion Paper 0908, "Trade liberalisation, market structure and the incentive to merge", by Chalkley, M.J. and Stewart, G.

In this paper we consider whether a movement towards freer international trade generates incentives for firms to merge and if so what forms of merger are most profitable. In a linear Cournot framework we show that a reduction in trade costs may, but will not necessarily, encourage mergers. Both market structure and the level to which trade costs fall are shown to play a decisive role. Domestic mergers will be encouraged only if the product market is not highly concentrated and trade costs fall below a threshold level. International mergers can be encouraged in any market structure, and are generally more profitable than domestic mergers.

Keywords: merger, international trade, oligopoly

JEL Classification: L4, F2

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