The Effects of Trade Liberalization on Cost-Reducing Horizontal Mergers

Ngo Long and Neil Vousden

Review of International Economics, 1995, vol. 3, issue 2, 141-55

Abstract: This paper analyzes the effects of tariff reductions on horizontal mergers in a Cournot oligopoly in a two-country world. It is shown that for mergers between two domestic firms and for cross-border mergers which supply both markets from a foreign plant, unilateral tariff reduction encourages mergers which concentrate market power at the expense of mergers which reduce cost, while bilateral tariff reductions have the opposite effect, encouraging mergers which significantly reduce cost. Cross-border mergers which continue to supply each market from a local plant are discouraged by both unilateral and bilateral tariff reduction. Copyright 1995 by Blackwell Publishing Ltd.

Date: 1995
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