By combining two large data sets (on international trade flows and cross-border mergers and acquisitions – M&As), we test two implications of Neary’s (2003, 2007) general oligopolistic equilibrium (GOLE) model (incorporating strategic interaction between firms in a general equilibrium setting). In terms of economic importance, the dominant merger wave variable is a positive global-all effect, indicating that M&A waves are an economy-wide, global phenomenon. Country-specific merger wave variables are of secundary importance. In accordance with the bilateral GOLE model as specified by Neary, we find strong evidence that acquiring firms operate in strong sectors. However, we also find (less pronounced) evidence that target firms are active in strong, not weak sectors, which we label the ‘target paradox’. We show how a multi-country extension of the GOLE model that allows for firm heterogeneity can explain this target paradox.

comparative advantage, cross-border nergers and acquisitions, general oligopolistic equilibrium trade model, merger waves
Trade: General (jel F10), Models of Trade with Imperfect Competition and Scale Economies (jel F12), Oligopoly and Other Imperfect Markets (jel L13)
Tinbergen Institute
Tinbergen Institute Discussion Paper Series
Discussion paper / Tinbergen Institute
Tinbergen Institute

Brakman, S, Garretsen, J.H, & van Marrewijk, J.G.M. (2008). Cross-border Mergers and Acquisitions (No. TI 2008-013/2). Discussion paper / Tinbergen Institute. Tinbergen Institute. Retrieved from