Premium
Trade Liberalization and International Mergers: The Case of Barley Malting in North America
Author(s) -
Buschena David E.,
Gray Richard S.
Publication year - 1999
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.2307/1349969
Subject(s) - oligopoly , cournot competition , free trade , incentive , economics , liberalization , international economics , economic surplus , international trade , mergers and acquisitions , microeconomics , market economy , welfare , finance
Abstract As free trade policy merges formerly distinct markets characterized by stable Cournot oligopolies and having similar cost structures, additional incentives are created for mergers within the newly combined industry that affect the gains from free trade. We use a Cournot‐Nash oligopoly model to examine the incentives for malting company mergers following Canadian‐U.S. free trade agreement. Mergers reduce free trade gains to malt consumers and malt barley producers while producer surplus in the malting industry increases. Overall, mergers increase the total gains from free trade beyond those without mergers.