The equilibrium ownership of an international oligopoly

Mergers and acquisitions (M&A) is the dominant form of Foreign Direct Inves tment (FDI), but has only received scarce attention in the theory literatur e on trade and investment. This paper highlights how the international patt ern of ownership of productive assets may depend on features of trade and p roduction costs. It suggests how high trade costs may be conducive to natio nal ownership of assets, while international firms may arise at lower trade costs, contrary to what the 'tariff jumping' argument would suggest. It is also shown how private and social incentives for M&A may differ for weak m erger synergies, but converge when synergies are stronger. (C) 2001 Elsevie r Science B.V. All rights reserved.