This paper analyzes industry adjustments to trade liberalization. It introduces cross-border mergers and acquisitions (M&A) as an alternative mode of industrial restructuring to firms' exit. In a two-country Cournot model, we examine the responses of domestic and foreign firms endowed with different technologies for different stages of trade openness. It is found that the less efficient firm loses market shares in its home market at the beginning of trade liberalization. Only for a more advanced level of liberalization, does it take advantage of a larger access to foreign demand. Trade liberalization may therefore harm its profits too strongly, forcing it to leave the market. However, although its incentives decrease with trade liberalization, the high-technology firm may be willing to take it over for low organizational and technological costs of firms' integration. In addition, it may buy it out even if the less efficient firm manages to stay. Then, trade liberalization affects M&A incentives depending on the technological gap. For low and high (medium) gap, there is an inverted U- (W-) shaped relation between trade costs and incentives to merge. Moreover, although technology transfer is assumed to be complete, M&A may lead to a reduction in consumers' welfare. Firms may capture some pro-competitive gains from economic openness. Lastly, an empirical analysis based on a data set of OECD members' multinationals gives some support to these theoretical predictions.
Trade liberalization and industrial restructuring: the role of cross-border mergers and acquisitions
Résumé
en
This paper analyzes industry adjustments to trade liberalization. It introduces cross-border mergers and acquisitions (M&A) as an alternative mode of industrial restructuring to firms' exit. In a two-country Cournot model, we examine the responses of domestic and foreign firms endowed with different technologies for different stages of trade openness. It is found that the less efficient firm loses market shares in its home market at the beginning of trade liberalization. Only for a more advanced level of liberalization, does it take advantage of a larger access to foreign demand. Trade liberalization may therefore harm its profits too strongly, forcing it to leave the market. However, although its incentives decrease with trade liberalization, the high-technology firm may be willing to take it over for low organizational and technological costs of firms' integration. In addition, it may buy it out even if the less efficient firm manages to stay. Then, trade liberalization affects M&A incentives depending on the technological gap. For low and high (medium) gap, there is an inverted U- (W-) shaped relation between trade costs and incentives to merge. Moreover, although technology transfer is assumed to be complete, M&A may lead to a reduction in consumers' welfare. Firms may capture some pro-competitive gains from economic openness. Lastly, an empirical analysis based on a data set of OECD members' multinationals gives some support to these theoretical predictions.
Auteur(s)
Olivier Bertrand1, 2
, Habib Zitouna3
1
Groupe de recherche en économie mathématique et quantitative
( 52954 )
- 31000 Toulouse
- France
Université Toulouse Capitole ( 81148 )
;
Université de Toulouse ( 443875 )
;
Institut National de la Recherche Agronomique UMR1291 ( 92114 )
;
Centre National de la Recherche Scientifique ( 441569 )
2
UT Capitole -
Université Toulouse Capitole
( 81148 )
- 2 rue du Doyen-Gabriel-Marty - 31042 Toulouse Cedex 9
- France
Université de Toulouse ( 443875 )
3
ESSEC Business School
( 301020 )
- 1, avenue Bernard Hirsch
CS 50105 Cergy
95021 Cergy Pontoise Cedex
France
Tél : +33 (0)1 34 43 30 00
Fax : +33 (0)1 34 43 30 01
- France
Audience
Internationale
Date de publication
2006
Volume
15
Page/Identifiant
479-515
Numéro
2
Localisation géographique du document
UMR 1291 UMR INRA / CNRS / Univ. Toulouse 1 : Groupe de Recherche en Economie Mathématique et Quantitative, Centre de recherche de Toulouse, 31326 CASTANET-TOLOSAN CEDEX, FRA
Olivier Bertrand, Habib Zitouna. Trade liberalization and industrial restructuring: the role of cross-border mergers and acquisitions. Journal of Economics and Management Strategy, 2006, 15 (2), pp.479-515. ⟨10.1111/j.1530-9134.2006.00108.x⟩. ⟨hal-02658379⟩