Wednesday, August 17, 2016

Merger Policy in a Quantitative Model of International Trade

Holger Breinlich, University of Nottingham - School of Economics; Centre for Economic Policy Research (CEPR); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP), Volker Nocke, University of Mannheim, and Nicolas Schutz, University of Mannheim theorize Merger Policy in a Quantitative Model of International Trade.

ABSTRACT:  In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. Calibrating the model to match industry-level data in the U.S. and Canada, we show that at present levels of trade costs merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.

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