Cross-Border Mergers as Instruments of Comparative Advantage

48 Pages Posted: 27 Apr 2004

See all articles by J. Peter Neary

J. Peter Neary

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: March 2004

Abstract

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital market liberalisation. The model predicts that bilateral mergers, in which low-cost firms buy out higher-cost foreign rivals, are profitable under Cournot competition. With symmetric countries, welfare may rise or fall, though the distribution of income always shifts towards profits. The model implies that trade liberalisation can trigger international merger waves, in the process encouraging countries to specialise and trade more in accordance with comparative advantage.

Keywords: Comparative advantage, cross-border mergers, GOLE (General Oligopolistic Equilibrium), market integration, merger waves

JEL Classification: F10, F12, L13

Suggested Citation

Neary, J. Peter, Cross-Border Mergers as Instruments of Comparative Advantage (March 2004). Available at SSRN: https://ssrn.com/abstract=536223

J. Peter Neary (Contact Author)

University of Oxford - Department of Economics ( email )

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Oxford, OX1 3BJ
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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