MERGER POLICY IN OPEN ECONOMIES

We extend Farrell and Shapiro's (1990) analysis of horizontal mergers to the case of an open economy. We show how the rules for approving a merger ought to be adapted to account for the fact that the regulator is only concerned with domestic welfare, that is, ignores the effect o f the merger on foreign firms and consumers. We also explore the conse quences of this externality in a model of a 'single market' which incl udes consumers and producers of different countries. In particular, we provide conditions under which a decentralized process of evaluating merger proposals a la Farrell-Shapiro can survive the externality ment ioned above.