Trade liberalisation, market structure and the incentive to merge

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Description/Abstract

In this paper we consider whether a movement towards freer international
trade generates incentives for firms to merge and if so what forms of merger
are most profitable. In a linear Cournot framework we show that a reduction
in trade costs may, but will not necessarily, encourage mergers. Both market
structure and the level to which trade costs fall are shown to play a decisive
role. Domestic mergers will be encouraged only if the product market is not
highly concentrated and trade costs fall below a threshold level. International
mergers can be encouraged in any market structure, and are generally more
profitable than domestic mergers.