MIDDLE EAST TECHNICAL UNIVERSITY

Department of Economics Seminar Series 

“Foreign Market Entry and Merger Policies with Economies of Scale”

by

Halis Murat Yıldız

(Toronto Metropolitan University)

Date: March 11, 2024 (Monday)

Time: 14:00

Place: F106, FEAS - Building A

Abstract

This paper investigates the equilibrium mode of entry of a foreign firm into a domestic market: export, greenfield investment and the acquisition of one or both domestic firms. We also examine whether there is room for welfare improving merger policy that can induce the most preferred entry mode from the host country's perspective. We first find that acquisitions are more likely with sufficiently high degree of economies of scale, and this is also the endogenous outcome of optimal merger policies. The host government can induce the most preferred market structure when the foreign firm always has an incentive to acquire at least one domestic firm. However, this may not always be the case and the government can fail to induce the most preferred entry mode, especially when trade cost is sufficiently low and the degree of economies of scale is at the intermediate level. Our findings suggest that strict merger policy is more likely to be optimal as the greenfield investment cost rises, potentially suggesting a link between merger and investment policies. Finally, the national merger policy can be excessive as monopolization may raise aggregate world welfare if the benefits from economies of scale are substantial.