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Welfare Effect of Mergers and Trade Liberalization

Amrita Ray Chaudhuri () and Hassan Benchekroun ()

No 2008-19, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: In a two-country model where firms behave à la Cournot, we show that marginal and non-marginal trade liberalization have different effects on the social desirability of horizontal mergers. Marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. In the neighborhood of free trade, for sufficiently low cost savings from merger, trade liberalization increases the desirability of merger whilst decreasing the profitability, implying that mergers should be actively encouraged by competition authorities. Furthermore, we identify ranges of tariff levels for which, if trade liberalization increases (decreases) the desirability of merger, it necessarily increases (decreases) its profitability.

JEL-codes: L41 F13 (search for similar items in EconPapers)
Date: 2008
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