Welfare Effect of Mergers and Trade Liberalization

A. Ray Chaudhuri, H. Benchekroun

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Abstract

In a two-country model where firms behave à la Cournot, we show that marginal and non-marginal trade liberalization have different effects on the social desirability of horizontal mergers. Marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. In the neighborhood of free trade, for sufficiently low cost savings from merger, trade liberalization increases the desirability of merger whilst decreasing the profitability, implying that mergers should be actively encouraged by competition authorities. Furthermore, we identify ranges of tariff levels for which, if trade liberalization increases (decreases) the desirability of merger, it necessarily increases (decreases) its profitability.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages30
Volume2008-19
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper
Volume2008-19

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    Ray Chaudhuri, A., & Benchekroun, H. (2008). Welfare Effect of Mergers and Trade Liberalization. (CentER Discussion Paper; Vol. 2008-19). Microeconomics.