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Free keywords:
Merger incentives; strategic trade policy
Abstract:
We study the profitability incentives for merger and the endogenous industry structure in a strategic trade policy environment. Merger changes the strategic trade policy equlilibrium. We show that merger can be profitable and welfare enhancing, even though it would not be profitable in a laissez-faire economy. A key element is a change in the governments’ incentives to give subsidies to their local firms. National merger induces more strategic trade policy, whereas international merger does not.
