National Champion versus Foreign Takeover

Jens Suedekum

No 2960, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze an oligopolistic market where a domestic and a foreign firm are engaged in a takeover battle for a domestic competitor. Any merger or acquisition (M&A) must be approved by a welfare maximizing domestic competition agency which may or may not be prone to “economic patriotism”. A patriotic government does not (fully) count wealth of domestic shareholders as relevant producer surplus if this wealth has been generated by selling a domestic firm abroad. We show that globalization (decreasing transport costs) has a different impact on the equilibrium ownership structure of that industry, depending on the type of government. With an unbiased competition agency we find that the foreign takeover is more likely to occur the higher the level of trade openness is. However, when the domestic government is biased we find that globalization reinforces the case for promoting national champions. This may explain why some countries have recently spent considerable effort to deter foreign attempts to acquire domestic firms.

Keywords: international trade; takeovers; national champions; trade integration; mergers (search for similar items in EconPapers)
JEL-codes: F12 F23 L13 L52 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007-07
New Economics Papers: this item is included in nep-com and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Canadian Journal of Economics / Revue canadienne d'économique, 2010, 43 (1), 204-231

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Working Paper: National Champion Versus Foreign Takeover (2008)
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