Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, June 20, 2013

Merger, Product Differentiation, and Trade Policy

Posted by D. Daniel Sokol

Guillaume  Cheikbossian (University of Montpellier, TSE) and Philippe Mahenc (University of Montpellier) describe Merger, Product Differentiation, and Trade Policy.

ABSTRACT: In a two-stage game with three firms and two countries, we study the profitability of a domestic merger in the context of an international oligopoly game with differentiated products and in a strategic trade policy environment. In contrast to a completely unregulated economy, we show that the domestic merger under Cournot competition is always profitable to the host country irrespective of the degree of product differentiation. Furthermore, it is also profitable to the competing country - hosting one firm only if products are sufficiently differentiated. Under Bertrand competition the merger is always profitable to both countries independently of the product range rivalry. But in a strategic trade environment it is more profitable to the country in which the merger occurs than to the other country.

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