Cross-Border Mergers as Instruments of Comparative Advantage

J. Peter Neary

427 citations0/0 files storedThe Review of Economic Studies

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Global trade and economics Merger and Competition Analysis Global Trade and Competitiveness

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 liberalization. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. As a result, trade liberalization can trigger international merger waves, in the process encouraging countries to specialize and trade more in accordance with comparative advantage. With symmetric countries, welfare is likely to rise, though the distribution of income always shifts towards profits.

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References

2003The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity 2004Export Versus FDI with Heterogeneous Firms 1984A Simple Theory of International Trade with Multinational Corporations 2002Multinational Firms and the Theory of International Trade 1983Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium 2004Multinational Firms in the World Economy 1976Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods

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