A Political Economy Model of Merger Policy in International Markets

Posted by D. Daniel Sokol

Massimo Motta, Universitat Pompeu Fabra and Michele Ruta, World Trade Organization (WTO) offer A Political Economy Model of Merger Policy in International Markets.

ABSTRACT: This paper looks at the political economy of merger policy under autarky and in international markets. We assume that merger policy is decided by antitrust authorities — whose objective is to maximize welfare — but can be influenced by governments, which are subject to lobbying by firms (insiders or outsiders to the merger). We argue that political economy distortions may explain some of the recently observed merger policy conflicts between authorities and politicians, as well as between institutions belonging to different countries. We illustrate our analysis with applications motivated by recent merger cases that have been widely debated in the international press.