This is a revised version of the paper first published in February 2008.In a two-country model where firms behave agrave; la Cournot, we show that marginal and non-marginal trade liberalization have different effects on the social desirability of horizontal mergers. Marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. In the neighborhood of free trade, for sufficiently low cost savings from merger, trade liberalization increases the desirability of merger whilst decreasing the profitability, implying that mergers should be actively encouraged by competition authorities. Furthermore, we identify ranges of tariff levels for which, if trade liberalization increases (decreases) the desirability of merger, it necessarily increases (decreases) its profitability.

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.

The objective of this study is to analyse the effects of trade liberalisation on profits of a capital-intensive exporting country and a labour-intensive one with different cost functions and the welfare of the importing country, as well as the effects of trade liberalisation on the firm-level profit-enhancing effects of mergers, under an oligopolistic competition framework. The results show that output is increasing in the degree of trade liberalisation and price falls with it. However, the effects of freer trade on profits of the exporting countries are ambiguous and depend on the net gains in profit from free trade. Given same level of output for both countries, a sufficiently high output would bring more profits to the capital-intensive country than to the labour-intensive country. Welfare of the importing country, at least within this framework, is increasing in the degree of trade liberalisation, provided that the initial level of restrictions in trade are not too high. Mergers, as considered in this paper, cause an increase in the firm-level profits. The extent to which they enhance the profits is inversely proportional to the number of firms in the country. With a freer trade, the profit effect of mergers depends on the extent to which the fall in profit due to fall in price outweighs the gain in profit due to increased output. A firm in the capital-intensive country can gain more from a merger than one in the labour-intensive country, if the aggregate output is at sufficiently large scale.

This paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non-cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro-competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff-jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade-liberalizing reductions in trade costs, a high-cost country's optimal policy may be to ban international mergers.

This paper extends Williamson's (1968) classic framework of the welfare effect of mergers to the case of vertical mergers, and in particular to those in which the imposition of merger conditions (remedies) may allow an otherwise anticompetitive merger to proceed. While similarities to the case of horizontal mergers without a remedies option are present, differences also arise. Most notably, for prototypical vertical mergers remedies may yield post-merger economic welfare which is higher than pre-merger levels. This suggests that remedies directed toward vertical mergers hold the promise of a more beneficial approach than in the case of horizontal mergers. This finding leads to an examination of merger remedies policy and practice. We find that antitrust enforcers historically have implicitly recognized both the economic welfare framework and the more robust role for remedies in vertical merger cases, particularly through the application of remedies aimed at preventing identified anticompetitive conduct while facilitating merger-related efficiencies. The 2020 Vertical Merger Guidelines illuminate the basis for the U.S. antitrust agencies' substantive analysis of vertical mergers, but do not address remedies. This paper discusses principles that may be useful in formulating much-needed guidance that would unify, clarify and reinforce the agencies' policies for remedies in vertical merger cases.