Sequential Cross-border Mergers in Models of Oligopoly

Abstract

Anti-competitive mergers may be held up when outside firms respond pro-competitively. I examine the profitability of cross-border mergers by embedding a class of oligopoly models—where mergers are anti-competitive and actions are strategic substitutes—in a sequential merger game, cast in a two-country setting. I find that cross-border mergers: (i) are held up only when ‘international differences’ are minimal; (ii) happen in clusters, not in isolation; and (iii) can be interdependent. I illustrate with two standard oligopolies. The ‘bumpiness’ of the world suggests that the hold-up problem is less pervasive in an open-economy context.