Partial Cross-Ownership and Merger Control in International Trade

Abstract

Given the rising trend of cross-ownership and mergers and acquisitions, this study builds an oligopoly model with general demand to analyze how partial cross-ownership (PCO) affects market competition and the merger control policies in international trade. In our model, ad valorem tariffs are imposed on imports. If the extent of PCO is sufficiently large, international PCO becomes more anti-competitive than domestic
PCO, resulting in a higher price. This contrasts with the result that an international merger is always less anti-competitive than a domestic merger. Besides that, international PCO can result in a higher price than both domestic and international mergers, even without merger synergy effects. Moreover, when the competition authorities employ a consumer surplus standard as the merger control policy, pre-merger PCO facilitates the approval of the subsequent merger. Trade liberalization
encourages the approval of a domestic merger but blocks an international merger from being approved. By way of policy implications, these results suggest that the competition authorities should regulate international PCO more heavily.