Trade liberalisation, market structure and the incentive to merge

Geoff Stewart and Martin Chalkley

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: 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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Persistent link: http://EconPapers.repec.org/RePEc:stn:sotoec:0908

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