G.Badri Narayanan
The objective of this study is to analyse the effects of trade liberalisation on firm-level profits with mergers and its dependence on whether the technology is labour-intensive or capital-intensive, under an oligopolistic competition framework involving two countries.
Mergers, as considered in this paper, cause an increase in the firm-level profits. The extent to which they enhance the profits is inversely proportional to the number of firms in the country. With mergers, the effects of freer trade depend on the extent to which the fall in profit due to fall in price outweighs the gain in profit due to increased output. A firm in the capital-intensive country can gain more from a merger than one in the labour-intensive country, if the aggregate the output is at a sufficiently large scale.