GEP Research Paper 01/30
Tariffs, Quotas and Mergers
R. Falvey and M. Nathananan
Abstract
In this paper we analyse and compare the effects of tariff and quota restrictions on the incentives for national and international mergers in a segmented oligopolistic market of Cournot-competing firms. We confirm previous results that tariffs tend to discourage (encourage) mergers involving small firms based in the protected (non-protected) market, at the margin. But we find that quotas tend to discourage similar mergers involving small firms from both locations. Where a ranking can be made, mergers are more profitable under a quota than under the "equivalent" tariff. These outcomes provide a further instance of the non-equivalence of tariffs and quotas in imperfectly competitive markets.
Issued in November 2001.
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