Monday, September 13, 2010
Posted by D. Daniel Sokol
Hamid Beladi (Department of Economics, College of Business, University of Texas at San Antonio), Avik Chakrabarti (Department of Economics, University of Wisconsin-Milwaukee) and Sugata Marjit (Centre for Studies in Social Sciences, Calcutta) explore Cross-border Merger, Vertical Structure, and Spatial Competition.
ABSTRACT: This analysis is a natural follow up of continued efforts to assess the consequences of cross-border mergers in industries with a vertical structure. Absent free trade, in a vertically related industry, the downstream firms will not choose the social optimum under spatial price discrimination when none of the downstream firms produce all the varieties that consumers demand. We show that free trade will induce the downstream firms to gravitate toward the social optimum but an upstream merger across borders, under free trade, will pull the downstream firms away from the social optimum back to their autarkic positions.