The CEPR and Portal websites will be unavailable between 12:45GMT and 13:00GMT on Friday, 30th October 2020 due to maintenance.

DP4325 | Cross-Border Mergers as Instruments of Comparative Advantage

Author(s)

Publication Date

23/03/2004

JEL Code(s)

Keyword(s)

Programme Area(s)

Network(s)

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