MERGER SIMULATION IN AN OPEN ECONOMY

Abstract

Recently, competition authorities use merger simulation tools to predict the effects of a merger on price, consumer welfare and social welfare. However, since standard merger simulation tools are developed to predict those effects in a closed economy, they do not consider the role of exports in evaluating merger effects. In an open economy or export oriented economy, a typical manufacturing industry exhibits quite high shares of export volumes. The welfare effects of merger could be quite different between an open economy and a closed economy. In an open economy, we need to consider exports in evaluating merger effects, and this article provides a framework on how to incorporate the role of exports in a standard Cournot merger simulation model.