Cross-border mergers and market concentration in a vertically related industry: theory and evidence

Avik Chakrabarti (), Yi-Ting Hsieh and Yuanchen Chang

The Journal of International Trade & Economic Development, 2017, vol. 26, issue 1, 111-130

Abstract: We present a tractable model of oligopoly to identify the linkages between local competition and cross-border mergers in a vertically related industry. We show that the incentives for cross-border mergers rise with vertical integration in an industry when the premerger concentration in that industry is sufficiently high relative to the concentration in the same industry in a foreign country. We also show that the incentives for a merger between a foreign firm and a vertically integrated home firm will be higher than that for a merger between a foreign firm and a disintegrated home firm, when the premerger concentration at home is low relative to the premerger concentration in the foreign country. We then analyze a firm-level panel of 90,614 M&A observations, between 1990 and 2012, from 86 countries. Logistic regressions confirm that market concentration is an important determinant of cross-border M&A. Our results support the conjectures of our theoretical model and are consistent with recent empirical findings and theoretical predictions.

Date: 2017
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DOI: 10.1080/09638199.2016.1220971

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