DP5601 Cross-Border Merger Waves

Author(s): Eileen Fumagalli, Helder Vasconcelos
Publication Date: March 2006
Keyword(s): endogenous mergers, merger waves, tariff-jumping FDI
JEL(s): F10, F13, L13, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5601

This paper proposes a sequential merger formation game with cost synergies to study how trade policy can influence firms' choice between domestic and cross-border mergers in an international Cournot oligopoly. We find that the equilibrium market structure depends heavily on: (i) the level of trade costs; and (ii) whether or not active antitrust authorities are incorporated within the sequential merger game. In addition, it is shown that whenever mergers occur in equilibrium, they occur in waves and the merger wave comprises at least one cross-border merger. We also analyze how the equilibrium market structures are affected by the presence of lobbying efforts.