Mergers in Nonrenewable Resource Oligopolies and Environmental Policies

Hassan Benchekroun, Michèle Breton and Amrita Ray Chaudhuri

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: We examine the profitability of horizontal mergers within nonrenewable resource industries, which account for a large proportion of merger activities worldwide. Each firm owns a private stock of the resource and uses open loop strategies when choosing its extraction path. We analytically show that even a small merger (merger of 2 firms) is always profitable when the resource stock owned by each firm is small enough. In the case where pollution is generated by the industry’s activity, we show that an environmental policy that increases firms’ production cost or reduces the price received by firms can deter a merger. This speeds up the industry’s extraction and thereby causes emissions to occur earlier than under a laissez-faire scenario.

Pages: 44 pages
Date: 2018
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Related works:
Journal Article: Mergers in nonrenewable resource oligopolies and environmental policies (2019)
Working Paper: Mergers in Nonrenewable Resource Oligopolies and Environmental Policies (2018)
Working Paper: Mergers in Nonrenewable Resource Oligopolies and Environmental Policies (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:18-2018

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