International Dimensions of Competition Policies. European Responses to American Mergers

Çaglar Özden

Revue économique, 2005, vol. 56, issue 6, 1413-1442

Abstract: The linkages between trade and certain domestic policies have attracted more attention as national economies become more integrated. The main reason is the increasing ease of transmission of externalities caused by domestic policies to trading partners as trade barriers are lowered. This paper focuses on the competition policies and aims to address the externalities imposed by mergers of foreign firms on other countries. In the theoretical section of the paper, we identify the economic variables that determine if a foreign merger has welfare implications for a trading partner. In the empirical section, we use a comprehensive dataset of the largest mergers involving American firms some of which are investigated by the European authorities. We employ a discrete choice model of the probability of review and identify the main mechanisms through which international externalities operate. We find the following variables to have significant effects: (1) the nationality of the acquired firm, (2) the market presence of merging firms in Europe and (3) the market presence of other American firms in Europe in that industry. Furthermore, we find that these variables are complementary and strongly reinforce each other?s influence on the review decision. These findings have important implications for any policy discussion and analysis.

Date: 2005
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