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Mergers in nonrenewable resource oligopolies and environmental policies

Hassan Benchekroun (), Michèle Breton and Amrita Ray Chaudhuri ()

European Economic Review, 2019, vol. 111, issue C, 35-52

Abstract: We examine the profitability of horizontal mergers within nonrenewable resource industries, which account for a large proportion of merger activities worldwide. Each firm owns a private stock of the resource and uses open-loop strategies when choosing its extraction path. We analytically show that even a small merger (merger of 2 firms) is always profitable when the resource stock owned by each firm is small enough. In the case where pollution is generated by the industry’s activity, we show that an environmental policy that increases the firms’ production cost or reduces their selling price can deter a merger. This speeds up the industry’s extraction and thereby causes emissions to occur earlier than under a laissez-faire scenario.

Keywords: Mergers; Horizontal Mergers; Cartels; Nonrenewable Resources; Natural Resources; Environmental Policy; Competition Policy; Antitrust (search for similar items in EconPapers)
Date: 2019
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Working Paper: Mergers in Nonrenewable Resource Oligopolies and Environmental Policies (2018) Downloads
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