DP2302 The Equilibrium Ownership of an International Oligopoly

Author(s): Henrik Horn, Lars Persson
Publication Date: November 1999
Keyword(s): Endogenous Market Structure, International Mergers, Tariff Jumping FDI
JEL(s): F23, L13
Programme Areas: Industrial Organization, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2302

Mergers and acquisitions (M&A) is the dominant form of Foreign Direct Investment (FDI), but has received only scarce attention in the theory literature on trade and investment. This paper highlights how the international pattern of ownership of productive assets may depend on features of trade and production costs. It suggests how high trade costs may be conducive to national ownership of assets, while international firms may arise at lower trade costs, contrary to what the 'tariff jumping' argument would suggest. It also shows how private and social incentives for M&A may differ for weak merger synergies, but converge when synergies are stronger.