Tariffs,R&D,and two merger policies |
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Authors: | Mehdi Arzandeh Hikmet Gunay |
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Affiliation: | 1. Faculty of Business Administration, Lakehead University, Thunder Bay, Ontario, Canada;2. Department of Economics, University of Manitoba, Winnipeg, Manitoba, Canada |
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Abstract: | We compare welfare-increasing and consumer-surplus-increasing merger policies in an oligopoly when merging firms face endogenous trade policies, and engage in cost-reducing R&D activity. As R&D becomes less efficient, the equilibrium market structures (EMS) become less concentrated under both merger policies. When R&D is very efficient, monopoly becomes the EMS under the welfare-increasing merger policy. This occurs as the absence of tariff and efficient R&D under monopoly limit the price increase and the gain in profits outweighs the loss in consumer surplus and tariff revenue. The results suggest that trade policies should take into account merger policies and industries' R&D efficiency. The results also show that global welfare maximization requires global merger policy coordination. |
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Keywords: | competition policy efficiency defense merger policy R&D trade  policy |
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