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Political contributions, subsidy and mergers

M. Ozgur Kayalica () and Rafael Espinosa Ramirez ()
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M. Ozgur Kayalica: Istanbul Technical University

EconoQuantum, Revista de Economia y Negocios, 2012, vol. 9, issue 2, 61-80

Abstract: We examine, in a oligopolistic partial equilibrium model, the effects of mergers and internal lobbies in shaping national subsidy policies. Domestic and foreign firms compete in the market for a homogeneous good in a host country, then the optimal output of the firms can be affected ambiguously by the government subsidy policy in the host country. Domestic firms offer political contributions to the government, that are tied to the government’s policy decision. The government sets the optimal policy maximizing a weighted sum of total contributions and aggregate social welfare taking into account merger of domestic firms as a competitive response.

Keywords: Foreign Direct Investment; Mergers; Lobby (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2012
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