Cross-Border Mergers and National Champions in an Integrating Economy

We present a simple oligopolistic model with three countries and illustrate the strategic aspects of merger policy. Mergers can be used to appropriate rents on consumptive third markets, even when the trade policy of these countries reacts endogenously. Competition policy inside the bloc of the two producing countries is too permissive towards mergers and acquisitions. A policy of cross-border mergers (European champions) need not imply a conflict between regional and global welfare. In contrast, the promotion of national champions may be in the interest of individual countries, but global welfare is always adversely affected.