GEP Research Paper 03/29
Endogenous Mergers and Tariffs in an Integrated Market
R. E. Falvey
Abstract
The last few decades have seen a significant reduction in trade barriers, which has brought the international aspects of competition policies into greater prominence. In this paper we explore the effects of tariffs on the profitability and welfare consequences of mergers in a simple model of the integrated world market for a single homogeneous product in which firms differ in their levels of efficiency. We find that the tariff "protects" less efficient firms from closure through merger if they are import-competing, but makes such closure more likely if they are exporters. Thus a tariff is likely to generate mergers of exporting firms. The implications of the tariff for the global welfare consequences of mergers depend on the tariff's effects on total output. If the tariff reduces (increases) total output, mergers are less (more) likely to raise welfare.
Issued in August 2003.
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