On Cross-Border Mergers and Product Differentiation

Abstract

Abstract We construct a general equilibrium model of an oligopolistic industry that allows us to capture the role of product differentiation in the incentives for and implications of cross-border mergers. We show that a rise in the degree of product differentiation will compress the extensive margins of trade and, at the same time, reduce the gains from cross-border mergers. We also demonstrate how cross-border mergers can mitigate the effect of product differentiation on the extensive margins of trade.