Product Differentiation, Asymmetric Information and International Mergers

Hong Kong University of Science and Technology

27 Pages Posted: 13 Feb 2003

See all articles by Larry D. Qiu

Larry D. Qiu

The University of Hong Kong - Faculty of Business and Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Wen Zhou

The University of Hong Kong - School of Business

Date Written: November 2002

Abstract

Information asymmetry creates value and incentives for firms from different countries to merge. To demonstrate this point, we develop a model of international trade under oligopolistic competition and asymmetric information, in which domestic firms are informed of the local market demands, but foreign firms are not. By emphasizing two features of a merger between a domestic firm and a foreign firm, we show that the two firms always want to share information, but output coordination is not always profitable, depending on the extent of product differentiation. We also examine how such a merger affects the non-merging firms' profits, consumer surplus, domestic welfare and global welfare. The results are crucially determined by the extent of product differentiation.

Keywords: international merger, information sharing, output coordination

JEL Classification: D82, L49, F12

Suggested Citation

Qiu, Larry Dongxiao and Zhou, Wen, Product Differentiation, Asymmetric Information and International Mergers (November 2002). Hong Kong University of Science and Technology. Available at SSRN: https://ssrn.com/abstract=358980 or http://dx.doi.org/10.2139/ssrn.358980

Larry Dongxiao Qiu (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

School of Economics and Finance
University of Hong Kong
Pokfulam
Hong Kong

HOME PAGE: http://www.bm.ust.hk/~larryqiu/

Wen Zhou

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

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