Cross-border mergers in vertically related industries

Hamid Beladi, Avik Chakrabarti () and Sugata Marjit

European Economic Review, 2013, vol. 59, issue C, 97-108

Abstract: We construct a tractable model of an oligopolistic industry that allows us to capture the role of the vertical structure in the incentives for and implications of cross-border horizontal mergers. We show that vertical integration can increase the gains from cross-border mergers. We also demonstrate how market concentration interacts with costs in the decision of a relatively efficient foreign firm located in one country (source) to merge with a disintegrated or an integrated firm in another country (target) when the industry is vertically related. Absent any merger incentives in an autarkic equilibrium, we demonstrate that vertical integration can raise the incentives for diversification in production and add to the gains from cross-border horizontal mergers. Any additional gain from cross-border horizontal mergers, due to the existence of a vertically integrated production structure, is shown to be sensitive to the relative market concentration across countries. Cross-border mergers will be triggered by a relatively cost-efficient source taking over a disintegrated target when pre-merger competition among the disintegrated firms is relatively intense but, otherwise, the initial target will be a vertically integrated firm.

Keywords: Multinational corporations; Merger; Cross-border merger; Vertical integration; Oligopoly; Comparative advantage (search for similar items in EconPapers)
JEL-codes: F10 F12 L13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:59:y:2013:i:c:p:97-108

DOI: 10.1016/j.euroecorev.2013.01.001

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