Industry Trade Balance and Domestic Merger Policy: Empirical Evidence from U.S. Merger Policy for Manufacturing Sectors

By Clougherty, Joseph A. | Contemporary Economic Policy, July 2005 | Go to article overview

Industry Trade Balance and Domestic Merger Policy: Empirical Evidence from U.S. Merger Policy for Manufacturing Sectors


Clougherty, Joseph A., Contemporary Economic Policy


I. INTRODUCTION

A voluminous literature (e.g., Williamson, 1968; Fisher, 1987; White, 1987; Farrell and Shapiro, 1990) exists concerning the welfare effect of mergers involving only domestic competitive implications; that is, domestic merger activity within a closed economy. Globalization, however, is fast fictionalizing the notion that merger policy can be completely embedded within one nation (Melamed, 2000). Accordingly, the intersection between trade and competition policy--a previously neglected topic--has recently received a great deal of scholarly attention (e.g., Richardson, 1999; Vandenbussche, 2000; Horn and Levinsohn, 2001). Further, and closer to the topic at hand, a growing dialogue exists on the design of merger policy in an open-economy setting (e.g., Barros and Cabral, 1994; Levinsohn, 1997; Head and Ries, 1997; Neven and Roller, 2000b, 2003; Mavrodis and Neven, 2001; Zhang and Chen, 2002). Such debate is particularly healthy, as the globalization of mergers and acquisitions suggests that larger nations with commitments to antitrust (e.g., the United States) will increasingly face the dilemmas previously experienced by midsize nations with commitments to antitrust (e.g., the United Kingdom and Germany).

The question motivating this work is how does the industry trade balance impact the tenor of merger policy for a specific industry sector. Within the above dialogue on merger policy in an open-economy setting exists a subliterature that specifically considers the impact of industry trade balance on optimal domestic merger policy. Invoking various oligopolistic scenarios, Barros and Cabral (1994), Head and Ries (1997), Levinsohn (1997), Sorgard (1997), Yano (2001), and Zhang and Chen (2002)--all find positive (negative) trade balances to conditionally favor more lenient (strict) domestic merger policy. Explicit in all these works is that antitrust agencies face a national welfare criterion of which foreign producers and consumers are not part; yet consumer surplus (not national welfare) is the stated criterion for many antitrust agencies. Moreover, Landes and Posner (1981), Ghosal (2002), and others make the intuitive argument that imports ameliorate anticompetitive behavior in domestic markets, thus suggesting the converse of above: Positive (negative) trade balances conditionally favor strict (lenient) domestic merger policy. Such discord is made more problematic once one recognizes the political economic nature of antitrust, the dangers of using "strategic" merger policy, and the bureaucratic discretion held by most antitrust authorities.

It remains difficult then to theoretically predict how trade balance impacts the tenor of domestic merger policy. Solving how--and whether--an industry trade profile alters domestic merger policy is ultimately an empirical question. Consequently I test here the impact of trade balance on merger policy outcomes in the U.S. manufacturing industrial sectors. A comprehensive panel dataset--covering U.S. merger policy at the two-digit standard industry classification (SIC) code level over the 1982-2001 period--allows testing whether trade balance acts to promote strict or lenient merger policy. The empirical results support higher trade balances leading to stricter merger policy.

The article is organized as follows to support the analysis. Section II reviews the competing theories on how trade balance might impact the nature of domestic merger policy and formulates two competing propositions that motivate the empirical testing. Section III presents the results of the empirical tests. Section IV concludes.

II. THEORIES AND COMPETING PROPOSITION FORMULATION

Barros and Cabral (1994) sparked the subliterature on trade balance and the optimal tenor of domestic merger policy in an open-economy setting with their extension of Farrell and Shapiro's (1990) pioneering approach to mergers in a closed economy. The Barros and Cabral setup consequently conforms rather closely to that of Farrell and Shapiro in a number of dimensions. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Industry Trade Balance and Domestic Merger Policy: Empirical Evidence from U.S. Merger Policy for Manufacturing Sectors
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.