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Mergers in Nonrenewable Resource Oligopolies and Environmental Policies

Amrita Ray Chaudhuri (), Hassan Benchekroun () and Michele Breton

No 2018-030, Discussion Paper from Tilburg University, Center for Economic Research

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 the firms' production cost or reduces their selling price can deter a merger. This speeds up the industry's extraction and thereby causes emissions to occur earlier than under a laissez-faire scenario.

Keywords: exhaustible resources; horizontal mergers; environmental regulation; differential games (search for similar items in EconPapers)
JEL-codes: Q39 L41 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ene, nep-env, nep-gth, nep-reg and nep-res
Date: 2018
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Journal Article: Mergers in nonrenewable resource oligopolies and environmental policies (2019) Downloads
Working Paper: Mergers in Nonrenewable Resource Oligopolies and Environmental Policies (2018) Downloads
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