Journal Article

Cross-Border Mergers as Instruments of Comparative Advantage

J. Peter Neary

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 74, issue 4, pages 1229-1257
Published in print October 2007 | ISSN: 0034-6527
Published online October 2007 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2007.00466.x
Cross-Border Mergers as Instruments of Comparative Advantage

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  • Mergers and Acquisitions
  • International Factor Movements and International Business
  • Market Structure, Firm Strategy, and Market Performance
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A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital-market liberalization. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. As a result, trade liberalization can trigger international merger waves, in the process encouraging countries to specialize and trade more in accordance with comparative advantage. With symmetric countries, welfare is likely to rise, though the distribution of income always shifts towards profits.

Keywords: D43; F23; G34; L13

Journal Article.  14613 words.  Illustrated.

Subjects: Mergers and Acquisitions ; International Factor Movements and International Business ; Market Structure, Firm Strategy, and Market Performance ; Market Structure and Pricing

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