Research

• Foreign Market Entry and Merger Policies with Economies of Scale (Job Market Paper)  [Latest Draft] 

with Frank Stähler and Halis Murat Yildiz 

Abstract: This paper investigates the equilibrium entry mode of a foreign firm into a domestic market that can export, do a greenfield investment or acquire one or two domestic firms. We also scrutinize the optimal merger policy of the host country and whether it can induce the most preferred entry mode. We find that acquisitions are more likely with sufficiently large economies of scale, and this is also the endogenous outcome of optimal merger policies. Furthermore, the host government can induce the most preferred market structure if and only if the foreign firm always wants to acquire at least one domestic firm. Our findings suggest that a strict merger policy is more likely to be optimal as the greenfield investment cost rises. Finally, the national merger policy can be excessive as monopolization may raise aggregate world welfare if the benefits from economies of scale are substantial.

• Non-cooperative Endogenous Merger Formation and the Linkage between Cross Border Mergers, Merger Policy, and Trade Costs

with Halis Murat Yildiz

Abstract: This paper employs a non-cooperative endogenous merger formation approach in a two-country oligopoly model of trade to examine how the equilibrium market structure and merger policy depend on trade costs. We employ coalition-proof Nash equilibrium (CPNE) concept ,and find that the tariff jumping argument of the FDI literature reemerges: highly concentrated international mergers arise in the equilibrium when trade costs are sufficiently high while it gets decentralized and becomes national for lower trade costs. Our results also extend support to the traditional merger literature when trade costs are relatively low: mergers may not be always profitable. From a welfare perspective, we show that concentrated international mergers are preferable when trade costs are sufficiently high, while a less concentrated market structure is preferred for lower trade costs. This implies that social and private merger incentives become aligned together, and thus countries have an incentive to follow a less strict competition policy as trade gets liberalized.

• Cross Border Merger Formation and Merger Policy under Trade and Production Cost Synergy 

with Halis Murat Yildiz

Abstract: This paper employs a non-cooperative endogenous merger formation approach in a two-country oligopoly model of trade to examine how the equilibrium market structure and merger policy depend on features of trade cost and cost synergies from merger. Using the coalition-proof Nash equilibrium (CPNE) concept, our results lend support to the tariff jumping argument of the FDI literature: for sufficiently small cost synergies, highly concentrated international mergers arise in the equilibrium when trade costs are sufficiently high while it gets decentralized for lower trade costs. If merger generates sufficiently large cost synergies, highly concentrated international mergers arise even when trade costs are sufficiently low. From a welfare perspective, we show that concentrated international mergers are preferable when trade costs are sufficiently high and cost synergies from merger are large, while a less concentrated market structure is preferred for lower trade costs and smaller cost synergies from merger. This implies that when synergies from merger are small and trade gets liberalized, social and private merger incentives become aligned together, and thus countries have an incentive to follow a less strict competition policy. When there is a discrepancy between social and private merger incentives, we find that a stricter competition policy could result in the market structure that is less concentrated than socially preferred level.