Merger profitability and trade policy

Huck, Steffen and Konrad, Kai A. (July 2001): Merger profitability and trade policy. WZB Discussion Paper

Abstract

We study the profitability and welfare effects of merger in a strategic trade policy environment. Merger changes the strategic trade policy equilibrium. We show that merger can be profitable and welfare enhancing here, even though it is not profitable in a laissez-faire economy. A key element is the change in the governments’ incentives to give subsidies to their local firms. We apply the results to the merger between Boeing and McDonnell-Douglas, where subsidies are a constant matter of debate. Our theory explains why the merger was profitable for Boeing and McDonnell-Douglas, why Airbus Industries opposed the merger, why the US authorities agreed to the merger, and why the EU competition authorities opposed it.

• Item Type: Paper
• Keywords: Merger; strategic trade policy
• Faculties: Economics > Chairs > MPI for Tax Law and Public Finance
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D43, D44, F12, L11, L13
• ISSN: 0347-0520
• Language: English