Political Economy Model of Cross‐Border Mergers Under Mixed Oligopoly

Abstract

This paper analyses the horizontal cross‐border mergers under the framework of political economy in mixed markets. We explore the conditions under which a cross‐border merger between a partially privatized foreign public firm and a profit‐maximizing domestic firm occurs and is approved by the domestic government. We show that a welfare‐maximizing domestic government approves the merger if the share owned by the foreign government is sufficiently low and the merger is relatively efficient; a government only caring about political contributions always approves such a merger; we also consider the case where the government cares about both social welfare and political contributions.