Mergers in Nonrenewable Resource Oligopolies and Environmental Policies

CentER Discussion Paper Series No. 2018-030

41 Pages Posted: 20 Sep 2018

See all articles by Hassan Benchekroun

Hassan Benchekroun

McGill University - Department of Economics

Michèle Breton

HEC Montreal - Department of Management Sciences

Amrita Ray Chaudhuri

University of Winnipeg - Department of Economics; Tilburg University - Center and Faculty of Economics and Business Administration; Tilburg Law and Economics Center (TILEC)

Date Written: September 4, 2018

Abstract

We study the profitability of horizontal mergers in 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 firm's 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, differntial games

JEL Classification: Q39, L41, Q58

Suggested Citation

Benchekroun, Hassan and Breton, Michèle and Ray Chaudhuri, Amrita, Mergers in Nonrenewable Resource Oligopolies and Environmental Policies (September 4, 2018). CentER Discussion Paper Series No. 2018-030. Available at SSRN: https://ssrn.com/abstract=3247472 or http://dx.doi.org/10.2139/ssrn.3247472

Hassan Benchekroun (Contact Author)

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada

Michèle Breton

HEC Montreal - Department of Management Sciences ( email )

Montreal, Quebec H3T 2A7
Canada
514-340-6490 (Phone)
514-340-5634 (Fax)

Amrita Ray Chaudhuri

University of Winnipeg - Department of Economics ( email )

Winnipeg, Manitoba R3B 2E9
Canada

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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