Trade Liberalization and the Profitability of Domestic Mergers |
| |
Authors: | Gérard Gaudet Rams Kanouni |
| |
Institution: | University of Montreal, CP 6128 Succursale Centre-ville, Montreal, Quebec H3C 3J7, Canada; . Manulife Financial, 200 Bloor Street East, Toronto, Ontario, M4W 1E5, Canada. |
| |
Abstract: | It is often thought that a tariff reduction, by opening‐up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. Using a simple example, the authors show that, in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence trade liberalization will not necessarily reduce the profitability of domestic mergers. |
| |
Keywords: | |
|
|