Université de Lausanne
Faculté des HEC
Département d'économétrie et d'économie politique

Cahier de recherches économiques du DEEP No. 09.06

Luís Santos-Pinto

The Impact of Firm Size and Market Size Asymmetries
on National Mergers in a Three-Country Model

February 2009

Abstract
This paper studies the impact of firm and market size asymmetries on merger decisions. To do that I consider a model where a small and a large country compete in a third (world) market. Each of the two countries has two firms (with potentially different costs) that supply the domestic market and export to the third market. Merger decisions in the two countries are modeled as a simultaneously move game. The paper finds that firms in the large country have more incentives to merge than firms in the small country. In contrast, the government of the large country has more incentives to block a merger than the government of the small country. Thus, the model predicts that conflicts of interest between governments and firms concerning national mergers are more likely in large countries than in small ones.

Keywords: mergers; international trade; merger policy; size asymmetry

JEL classification: F13; H77; L11; L41