Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 02/08: Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?

Kjell Erik Lommerud (), Frode Meland () and Odd Rune Straume ()
Additional contact information
Kjell Erik Lommerud: Department of Economics, University of Bergen, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Frode Meland: Department of Economics, University of Bergen, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Odd Rune Straume: University of Minho (NIPE), Portugal; and University of Bergen (Health Economics Bergen), Postal: Campus de Gualtar, 4710-057 Braga, Portugal

Abstract: Many policy makers seem to prefer domestic alternatives to cross-broder mergers. Can such sentiments make sense? We contruct a model where cross-border mergers drive down union-set wages, where domestic mergers have larger non-labour cost synergies than international ones, and where policy evaluators care more about workers than capital owners. Apparently, the stage is set for national champion policies to be sensible. However, we also introduce the possibility of capital ?ight in the sense that a domestic ?rm can physically move its production out of the country. Restrictive cross-border merger policies can then seriously back?re, since they do not necessarily bring about a domestic merger - but capital flight instead.

Keywords: Cross-border merger; national champions; greenfield FDI; trade unions

JEL-codes: F16; F21; J51; L13

28 pages, March 23, 2008

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