International Mergers: Incentive and Welfare

Information asymmetry creates value and incentives for ̄rms from di®erent countries to merge. To demonstrate this point, we develop a model of international trade under oligopolistic competition and asymmetric information, in which domestic ̄rms are informed of the local market demands, but foreign ̄rms are not. By emphasizing two features of a merger between a domestic ̄rm and a foreign ̄rm, we show that the two ̄rms always want to share information, but output coordination is not always pro ̄table. We also examine how such a merger a®ects the non-merging ̄rms' pro ̄ts, consumer surplus, domestic and global welfare. The results are crucially determined by the extent of product di®erentiation. JEL Classi ̄cation No.: F12, D82, L49