On the profitability of cross-border mergers
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- Discussion papers (SAM) 
A horizontal merger is unlikely to be profitable unless it involves the large majority of firms in an industry. This well established result was developed by Salant et al (1983) in a closed economy setting. The present paper studies the profitability of mergers in an open economy. A cross-border merger provides the acquiring firm with market access. If alternative modes of market entry are sufficiently costly, a merger may indeed be profitable. The relationship between entry costs and the profitability of merger is, however, not a monotonic one. An increase in entry costs may cause a change in the optimal entry mode of rival firms such that a merger may be unprofitable even for higher entry costs. The paper also derives results regarding the nationality of the acquiring firm.
UtgiverNorwegian School of Economics and Business Administration. Department of Economics