Merger profitability and trade policy

Fusionen und Handelspolitik

Steffen Huck and Kai Konrad

No FS IV 01-12, Discussion Papers, Research Unit: Market Processes and Governance from WZB Berlin Social Science Center

Abstract: We study the profitability and welfare effects of merger in a strategic trade policy environment. Merger changes the strategic trade policy equilibrium. We show that merger can be profitable and welfare enhancing here, even though it is not profitable in a laissez-faire economy. A key element is the change in the governments’ incentives to give subsidies to their local firms. We apply the results to the merger between Boeing and McDonnell-Douglas, where subsidies are a constant matter of debate. Our theory explains why the merger was profitable for Boeing and McDonnell-Douglas, why Airbus Industries opposed the merger, why the US authorities agreed to the merger, and why the EU competition authorities opposed it.

Keywords: Merger; strategic trade policy (search for similar items in EconPapers)
JEL-codes: D43 D44 F12 L11 L13 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (1)

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Journal Article: Merger Profitability and Trade Policy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmpg:fsiv0112

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