We examine the profitability of horizontal mergers within 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 firms' 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.
|Place of Publication||Tilburg|
|Publisher||CentER, Center for Economic Research|
|Number of pages||41|
|Publication status||Published - 10 Sep 2018|
|Name||CentER Discussion Paper|
- exhaustible resources
- horizontal mergers
- environmental regulation
- differential games
Ray Chaudhuri, A., Benchekroun, H., & Breton, M. (2018). Mergers in Nonrenewable Resource Oligopolies and Environmental Policies. (CentER Discussion Paper; Vol. 2018-030). Tilburg: CentER, Center for Economic Research.