Trade Liberalization and the Profitability of Domestic Mergers

Gérard Gaudet and Rams Kanouni

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: It is often thought that a tariff reduction, by opening up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. In this paper, we show, using a simple example, that in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence, trade liberalization will not necessarily reduce the profitability of domestic mergers.

Keywords: mergers; antitrust; free trade (search for similar items in EconPapers)
JEL-codes: F12 G30 G34 K23 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2001
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http://hdl.handle.net/1866/367 (application/pdf)

Related works:
Journal Article: Trade Liberalization and the Profitability of Domestic Mergers (2004)
Working Paper: Trade Liberalization and the Profitability of Domestic Mergers (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2001-28

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