Mergers in Nonrenewable Resource Oligopolies and Environmental Policies

A. Ray Chaudhuri, H. Benchekroun, Michele Breton

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Abstract

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.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages41
Volume2018-030
Publication statusPublished - 10 Sep 2018

Publication series

NameCentER Discussion Paper
Volume2018-030

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Keywords

  • exhaustible resources
  • horizontal mergers
  • environmental regulation
  • differential games

Cite this

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.