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Welfare Effect of Mergers and Multilateral Trade Liberalization

Authors

  • Amrita Ray Chaudhuri,

    Corresponding author
    1. Department of Economics, The University of Winnipeg, 515 Portage Avenue, Winnipeg, MB, Canada R3B 2E9 and CentER, TILEC, Tilburg University, Warandelaan 2, P.O. Box 90153, 5000 LE Tilburg, The Netherland
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  • Hassan Benchekroun

    Corresponding author
    1. Department of Economics, CIREQ, McGill University, 855 Sherbrooke Ouest, Montreal, QC, Canada, H3A-2T7
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    • The authors wish to thank two anonymous referees for helpful comments and the Fond Québécois de Recherche sur la Société et la Culture (FQRSC) and the Social Sciences and Humanities Research Council of Canada (SSHRC) for their financial support.


Ray Chaudhuri: Department of Economics, The University of Winnipeg, 515 Portage Avenue, Winnipeg, MB, Canada R3B 2E9 and CentER, TILEC, Tilburg University, Warandelaan 2, P.O. Box 90153, 5000 LE Tilburg, The Netherlands. Tel: +1-204-2582940; Fax: +1-204-7724183; E-mail: a.raychaudhuri@uwinnipeg.ca. Benchekroun: Department of Economics, CIREQ, McGill University, 855 Sherbrooke Ouest, Montreal, QC, Canada, H3A-2T7. E-mail: hassan.benchekroun@mcgill.ca.

Abstract

In a two-country model where firms behave à la Cournot, we show that trade liberalization increases (decreases) the social desirability of those mergers that generate sufficiently large (small) reductions in marginal cost. There exists a range of intermediate levels of marginal cost savings such that marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. Moreover, in the neighborhood of free trade, we show that if trade liberalization increases the profitability of a merger, it necessarily also increases its desirability.

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