Because of cross-border demand and supply linkages, merger approval decisio...

In a globalizing world, the decisions of national merger authorities impose externalities on foreign jurisdictions. In a two-country international trade model with oligopolistic competition, we study the potential conflicts between national merger authorities and provide conditions under which they arise. When deciding whether to block a proposed merger to prevent harm on domestic consumers, each authority faces a trade-off between the market power effect of the merger and its efficiency effect. Because of trade costs and asymmetries between countries, the same merger may be good for consumers in one country but bad for consumers in the other. Endogenizing the merger formation process and explicitly modeling the authorities ’ decisions, we calibrate the model to match industry-level data for 160 sectors in the U.S. and Canada. We use the calibrated model to study the impact of different policy regimes such as introducing or abolishing veto rights on foreign mergers, or the establishment of a North American competition authority. We also look at the interaction of merger and trade policy by studying how the changes in consumer surplus resulting from these policy changes vary with the leve