Cross-Border Mergers as Instruments of Comparative Advantage
48 Pages Posted: 27 Apr 2004
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: Suggested Citation
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