Access regulation and cross-border

mergers: Is international policy

coordination beneficial?

Kjell Erik Lommerud, Trond E. Olsen∗, Odd Rune Straume

February 2005Abstract

The strategic position of multinationals in regulated indus-

tries poses challenges for regulatory policy and for international

coordination of such policies. One possibly important aspect of

this challenge is the implications that the overall international

regulatory regime will have for cross-border and/or domestic merger

activity. In particular, do non-coordinated policies stimulate

cross-border mergers that are overall inefficient, and is this then

an argument for international coordination of such policies? The

paper addresses this issue in a setting where firms must have ac-

cess to a transportation network which is controlled by national

regulators. The analysis reveals that non-coordinated regulatory

policies may induce mergers that are overall welfare enhancing

compared to market outcomes under coordinated regulation.

∗Corresponding author. Address: Norwegian School of Economics and BusinessAdministration, Helleveien 30, 5045 Bergen, Norway. E-mail: trond.olsen@nhh.no

1

1 Introduction

The ongoing process of international integration of energy markets poses

new challenges for regulatory policy. One aspect that regulatory policies

must deal with is the restructuring via mergers and acquisitions that has

taken place partly as a consequence of deregulation and liberalization.

These developments have occurred both at a national level, in the form

of domestic firms merging with or acquiring other domestic firms, and at

an international level, where firms have merged with or acquired targets

across national borders. For instance EDF-GDF, the former French

energy monopolist, has acquired London Electricity, an important UK

energy provider, and is planning expansion into other European national

energy markets. In Scandinavia the Sweedish company Vattenfall has

expanded through mergers and acquisitions both nationally and to a

significant extent in other Scandinavian countries, including Norway.

Firms may merge for a variety of reasons, including increased profit

opportunities associated with synergy gains, improved market access and

increased market power. In regulated industries, including gas and elec-

tricity, such profit opportunities are influenced by the regulatory regime.

In particular, when firms in different countries merge, the consolidated

enterprise will relate to national regulatory bodies in all the countries

where it operates. This opens up the possibility for the firm of strate-

2

gically exploiting non-coordinated behavior on the part of these bodies,

and to some extent pitting the bodies against each other. The profit op-

portunities associated with this strategic position may then be another

motive for national firms to merge internationally. Cross-border merg-

ers may thus in part be motivated precisely by a lack of international

regulatory coordination.

The strategic position of multinationals in regulated industries poses

challenges for regulatory policy and for international coordination of

such policies. One possibly important aspect of this challenge is the

implications that the overall international regulatory regime will have

for cross-border and/or domestic merger activity. In particular, do non-

coordinated policies stimulate cross-border mergers that are overall in-

efficient, and is this then (another) argument for international coordi-

nation of such policies? In this paper we address this issue in a setting

where firms must have access to a transportation network which is con-

trolled by national regulators.

An interesting finding is that the answer to the posed question may

be negative; thus the analysis reveals that non-coordinated regulatory

policies may induce mergers that are overall welfare enhancing compared

to market outcomes under coordinated regulation. This finding thus

points to the possibility that international coordination of regulatory

3

policies may have detrimental effects for overall welfare.

To explain this result one may start from the observation that detri-

mental effects of international cooperation typically only arise in ‘second-

best’ settings where regulators have a limited set of instruments and

means to influence economic agents’ decisions. We consider a setting

where regulators (realistically) have limited means to influence firms’

decisions with respect to mergers and acquisitions, and in particular

cannot commit to policies that leave firms with pure profits (rents) that

may motivate such decisions. We assume that regulators in line with

welfare considerations will, for a given market structure, pursue policies

that benefit consumers by leaving as little rent as possible in regulated

firms. But the opportunities to extract such rents are different under

cooperative compared to non-cooperative regulatory regimes. In the

non-cooperative case a multinational firm may to some extent pit a na-

tional regulator against foreign regulators by a (more or less implicit)

threat of moving nationally desirable activities abroad. Such a credible

threat may ‘soften’ the national regulator and force her to leave more

rents to the firm. In equilibrium the multinational enterprise can thus,

due to the strategic position facilitated by its opportunities to move ac-

tivities internationally, obtain a rent; a mobility rent. It would not be

possible to obtain this rent if policies were fully coordinated, so that

4

all national regulators related to the firm on a cooperative basis. We

point out that this rent; the mobility rent associated with multinational

operations under non-cooperative regulation, can be a decisive motive

for cross-border mergers. Moreover, such mergers may be socially de-

sirable. Hence it follows that non-cooperative regulation may be overall

beneficial compared to a fully cooperative regulatory regime.

Our focus on and analysis of the links between regulatory regimes

and merger activity is to our best knowledge new. The regulation lit-

erature has analyzed various aspects of equilibrium policies when firms

are subject to multiple regulatory bodies; this literature includes Baron

(1985), Laffont-Tirole (1991), Stole (1992), Martimort (1996a,b), Bond-

Gresik (1996), Calzolari (2001, 2004); but has not considered the links

to merger activity. There are some parallell issues in the literature on

taxation of multinational enterprises and strategic tax policy (see e.g.

Markusen (1995), Haaparanta (1996), Konrad-Lommerud (2001), Olsen-

Osmundsen (2001) ), but neither this literature has considered endoge-

nous merger decisions. In our model regulators oversee market access

(via a network), and their task is to regulate the price of this access.

Neither the literature on access pricing (see e.g Laffont-Tirole (2000),

Armstrong (2002)) has made the link to merger activity. Finally, the

literature on mergers (see e.g. Huck-Konrad (2004), Lommerud et al

5

(2005a,b)) has not analyzed how this is affected by regulatory regimes

in regulated industries.

2 Model

Consider an industry with initially four ex ante identical firms located

in two countries; firms 1 and 2 are located in country A, whereas firms

3 and 4 are located in country B.1 The firms produce a homogenous

good (e.g., electricity or natural gas) which is exported to a third coun-

try. Third-market exports require access to a transportation network,

where the access price (assumed to be a two-part tariff) is regulated by

the respective national governments. We further assume that the firms

compete á la Cournot in the export market.

Third-market demand for the good is given by an inverse demand

function

p = a− b4Xi=1

qi, (1)

where p is the market-clearing price and qi is quantity supplied by firm i.

The firms can produce the good according to a convex variable cost func-

tion C (qi). For simplicity, we let this function take a simple quadratic

form: C (qi) = c2q2i . The firms must also incur a firm-specific fixed cost

K. In the decentralised market structure, with no mergers, profits of

1Regarding notation, we use the indices j and i for countries and firms, respec-tively, while the set of firms located in country j is given by Nj .

6

firm i (located in country j) are then given by

πji = (p− wj) qi − C (qi)−K − Tj, (2)

where wj and Tj constitute the two-part tariff for access to the trans-

portation network in country j.

National regulators are concerned about maximising national welfare,

which — in the absence of domestic consumers — is assumed to be given by

a weighted sum of public revenue and private profits. In the decentralised

market structure, national welfare in country j is given by

Wj = 2Tj + wjXi∈Nj

qi + αXi∈Nj

πi, α < 1. (3)

The assumption that α is strictly less than one implies that the regulator

will extract all private profits if she is costlessly able to do so. The above

specification of welfare also implicitly rests on the assumption that there

are no costs associated with the operation of the transportation network

(i.e., transportation costs are zero).2

For a given market structure, we consider the following game:

• The national regulators set, cooperatively or non-cooperatively,

2Positive transportation costs can easily be introduced, but offer no additionalinsight to our analysis.

7

access prices, given by (wj, Tj) .

• The firms choose outputs simultaneously and non-cooperatively.

The effects of different types of merger (domestic or cross-border)

are assessed by assuming that the market structure is determined at the

outset of the above described game, reflecting the fact that mergers are

indeed long-term decisions with a considerable degree of commitment

involved.

3 Cooperative regulation

As a benchmark for comparison, we start out by considering the case

where access regulation is harmonised across borders. In the decen-

tralised market structure, profit maximising output quantities are given

by

qi∈NA =a (b+ c)− (3b+ c)wA + 2bwB

(5b+ c) (b+ c), (4)

qi∈NB =a (b+ c)− (3b+ c)wB + 2bwA

(5b+ c) (b+ c). (5)

Maximisation of global welfare implies that marginal access prices must

satisfy the first-order conditions

∂ (WA +WB)

∂wj= 0, (6)

8

while the fixed fees must be set so that the participation constraints are

satisfied:

πi ≥ 0. (7)

Solving (6) and (7), assuming that the participation constraints hold

with equality, and taking into account that the choice of wj affects the

optimal choice of Tj, we derive the optimal two-part tariffs:

wj =3ab

8b+ c, (8)

Tj =(2b+ c) a2

2 (8b+ c)2−K. (9)

We observe that optimal access pricing involves setting a marginal access

price in excess of marginal transportation costs, i.e., wj > 0. This is

done to correct for the negative competition externality in the product

market. By cooperative regulation, the cartel output — which maximises

joint profits — can be implemented. Private profits can then be fully

extracted through the fixed fee, Tj, leaving the firms with zero profits in

equilibrium. National welfare in the cooperative solution is given by

Wj =a2

8b+ c− 2K. (10)

9

3.1 Mergers

Focusing on two-firm mergers, we consider the cases where the firms in

the industry merge either domestically or cross-border, implying that the

number of firms is reduced from 4 to 2. We assume that a merger entails

a cost synergy, which takes the form of fixed-cost savings, and we also

allow for the possibility that the size of these fixed-cost savings depends

on whether the merger is domestic or cross-border. More specifically,

we assume that cost savings in a domestic and cross-border merger,

respectively, are θdK and θcK, where θd, θc ∈ (0, 1).

In the case of domestic mergers, profits are given by

π1+2 = (p− wA) (q1 + q2)− C (q1)− C (q2)− (2− θd)K − TA, (11)

π3+4 = (p− wB) (q3 + q4)− C (q3)− C (q4)− (2− θd)K − TB, (12)

from which we can derive optimal outputs in the Cournot game:

qd1 = qd2 =

a (2b+ c)− wA (4b+ c) + 2bwB(2b+ c) (6b+ c)

, (13)

qd3 = qd4 =

a (2b+ c)− wB (4b+ c) + 2bwA(2b+ c) (6b+ c)

. (14)

In the case of cross-border mergers, on the other hand, profits are

10

given by3

π1+3 = (p− wA) q1+(p− wB) q3−C (q1)−C (q3)−(2− θc)K−TA−TB,

(15)

π2+4 = (p− wA) q2+(p− wB) q4−C (q2)−C (q4)−(2− θc)K−TA−TB.

(16)

In this case, profit-maximising outputs are given by

qc1 = qc2 =

ac− wA (3b+ c) + 3bwBc (6b+ c)

, (17)

qc3 = qc4 =

ac− wB (3b+ c) + 3bwAc (6b+ c)

. (18)

When analysing optimal access regulation we make the assumption

that, in the case of cross-border mergers, profits are divided equally be-

tween share-holders in the two countries.4 With cross-border harmoni-

sation of access regulation, the regulators are always able to implement

the full cartel output and extract all profits in equilibrium. The mar-

ginal access price is equal regardless of the type of merger, and given

by

wj =2ba

8b+ c. (19)

3We assume that firms 1 and 3 merge, as do firms 2 and 4.4In other words, half of the total profits generated in an internationally merged

firm enters the objective function of a domestic regulator. It should be stressed,though, that the main thrust of the analysis does not depend on a particular sharingrule.

11

Comparing (8) and (19), we observe that a more concentrated market

structure implies a marginal access price closer to marginal transporta-

tion costs, as we would expect. The fixed fee, on the other hand, depends

on the size of merger synergies:

T dj =(4b+ c) a2

(8b+ c)2− (2− θd) , (20)

T cj =1

2

½(4b+ c) a2

(8b+ c)2− (2− θc)

¾. (21)

Since cooperative regulation implies that total industry rents are

maximised and fully extracted, the preferred market structure — in terms

of national and global welfare — entails the mergers that yield the largest

synergies. The explicit expression for national welfare when mergers of

type k is undertaken, is given by

Wj =a2

8b+ c− (2− θk)K. (22)

4 Non-cooperative regulation

Now we consider the case where national regulators set access prices

simultaneously and non-cooperatively. We start out by analysing the

regulatory game in the decentralised market structure.

Equilibrium access prices are given by the solution to the following

12

system of equations:

∂Wj

∂wj= 0, (23)

πi = 0. (24)

Using (4) and (5), equilibrium access prices are given by

wj =ab (c− b)

(c+ 7b) (2b+ c), (25)

Tj =(3b+ c)2 a2

2 (2b+ c) (c+ 7b)2−K. (26)

In equilibrium, national welfare is then given by

Wj =(7bc+ 4b2 + c2) (3b+ c) a2

(c+ 7b)2 (2b+ c)2− 2K. (27)

In the absence of international coordination, national regulators must

now balance two opposing incentives in framing the optimal regulatory

policies. One the one hand, national regulators have incentives to use

the marginal access price to correct for a negative externality between

domestic competitors, moving the market equilibrium closer to the cartel

outcome. One the other hand, there is also an incentive to use the

marginal access price as a strategic trade policy instrument. By lowering

13

wj from the cooperative equilibrium level, the regulator in country j can

ensure — all else equal — that a larger share of the export market is served

by the firms located in j. Since outputs are strategic substitutes in the

product market game, this is a profitable deviation.5 Consequently, the

equilibrium level of wj is lower when access pricing is not internationally

coordinated.6 The relative strengths of these opposing incentives are

determined by the degree of convexity in production costs, measured

by the parameter c. Strategic trade policy is more effective when c is

low. Thus, a lower c increases rent-shifting incentives and leads to a

lower equilibrium value of wj. From (25) we see that marginal access

prices will be set below marginal transportation costs in equilibrium (i.e.,

wj < 0) if c < b.

Domestic mergers

Solving (23) and (24) by using (13)-(14), equilibrium access pricing

when firms merge domestically is given by

wj =−4b2a

10bc+ 20b2 + c2, (28)

Tj =(4b+ c)3 a2

(10bc+ 20b2 + c2)2− (2− θd)K. (29)

5See, e.g., Brander and Spencer (1985).6This is easily confirmed by a comparison of (8) and (25).

14

Regulators are still able to extract all private profits, and social welfare

in country j is

Wj =(8bc+ 8b2 + c2) (4b+ c) a2

(10bc+ 20b2 + c2)2− (2− θd)K. (30)

The previously discussed negative externality on domestic competi-

tors is now fully internalised by the firms themselves through mergers.

Thus, when the market structure is characterised by national monopo-

lies, only rent-shifting incentives matter for the choice of marginal access

prices in the non-cooperative policy game. Consequently, domestic merg-

ers lead to lower equilibrium levels of wj. Indeed, from (28) we see that

the regulators will always set a marginal access price below marginal

transportation costs in equilibrium.

Cross-border mergers

Cross-border mergers increase the flexibility of the merging parties,

in the sense that a merged firm can choose to serve the export market

from both or either of the exporting countries. Under non-cooperative

regulation, this flexibility serves as a credible threat vis-á-vis national

regulators. The regulator in country j must now make sure that she

offers an access price for the transportation network that discourages

the internationally merged firms to re-locate all export production to

15

the other country.

Let bπm (j) denote the profits earned by the merged firmm when serv-ing the export market only from country j. Optimal access regulation in

the non-cooperative regime must now also satisfy the following mobility

constraint :

πm ≥ bπm (j) . (31)

Using (1) and (2), it is straightforward to derive

bπ1+3 (j) = bπ2+4 (j) = (2b+ c) (wj − a)2

2 (3b+ c)2− (2− θc)K − Tj. (32)

On the other hand, if the merged firms serve the export market from

both countries, equilibrium profits are found by inserting (17)-(18) into

(15)-(16), and given by

π1+3 = π2+4 =2ca (4b+ c) (a− wA − wB) + η

2c (6b+ c)2− (2− θc)K − TA − TB,

(33)

where

η :=¡8bc+ 18b2 + c2

¢ ¡w2A + w

2B

¢− 4bwAwB (9b+ 2c) > 0.

16

Using (32) and (33), the mobility constraints can be expressed as

TA ≤(a− wA) c− 3b (wA − wB)2 (6b+ c)2 (3b+ c)2 c

µA, (34)

TB ≤(a− wB) c− 3b (wB − wA)2 (6b+ c)2 (3b+ c)2 c

µB, (35)

where

µA := ac¡c2 + 6bc+ 6b2

¢−wA (3b+ c)

¡8bc+ 18b2 + c2

¢+bwB

¡54b2 + 5c2 + 36bc

¢,

µB := ac¡c2 + 6bc+ 6b2

¢−wB (3b+ c)

¡8bc+ 18b2 + c2

¢+bwA

¡54b2 + 5c2 + 36bc

¢.

Using these conditions in the regulators’ maximisation problems, equi-

librium access pricing in the non-cooperative regime with cross-border

mergers are given by

wj =

¡4 (3b+ c)2 − α (36b2 + 27bc+ 4c2)

¢acb

λ, (36)

Tj =2a2c (3b+ c)4 (6b2 + 6bc+ c2)

λ2, (37)

where

λ := 2 (2b+ c) (9b+ c) (3b+ c)2 − bcα¡36b2 + 27bc+ 4c2

¢> 0.

17

The ability of internationally merged firms to play the national regula-

tors out against each other means that the firms can earn positive profits

in equilibrium. These are given by

πi =4ba2 (36b2 + 27bc+ 4c2) (3b+ c)4

λ2− (2− θc)K. (38)

We see that the existence of this equilibrium requires that K is below a

critical level K. If K > K, the regulators can extract all profits in the

non-cooperative equilibrium without violating the mobility constraints.

In this case, the internationally merged firms do not obtain any strategic

advantage from the merger. In the remainder of the analysis, we will

assume that K is strictly below K.7

When all private profits are not extracted, the weight attached to

profits in the regulators’ objective functions matters for the equilibrium

access price. From (36) it is easily confirmed that wj is decreasing in α.

Social welfare is now given by

Wi =4a2 (3b+ c)3 γ

λ2− α (2− θc)K, (39)

7It follows from (38) that

K =4ba2

¡36b2 + 27bc+ 4c2

¢(3b+ c)

4

(2− θc)h2 (2b+ c) (9b+ c) (3b+ c)2 − bcα (36b2 + 27bc+ 4c2)

i2 .

18

where

γ := c (3b+ c)¡c2 + 10bc+ 18b2

¢+ 3b2α

¡36b2 + 27bc+ 4c2

¢.

5 Social welfare

In this section we discuss two interrelated questions regarding social

welfare. First, which types of merger, if any at all, are preferred from

a welfare point-of-view? Second, assuming that merger decisions are

endogenously made, is international harmonisation of access regulation

socially desirable?

In the cooperative regulation regime, a social ranking of market struc-

tures is straightforward. In any market structure, the regulatory para-

meters are set so that total industry rents are maximised. Consequently,

any mergers are socially desirable if they yield some cost synergies at all.

It follows trivially that the socially most preferable market structure is

the one in which the largest merger synergies are realised.

In the non-cooperative regulation regime, things are far less straight-

forward. Using the decentralised market structure as a benchmark, the

welfare effect of domestic mergers is given by

∆Wj =16b4 (92b3 + c3 + 69b2c+ 15bc2) a2

(7b+ c)2 (10bc+ 20b2 + c2)2 (2b+ c)2+ θdK > 0. (40)

19

Thus, domestic mergers are always welfare improving, even if there

are no cost synergies associated with such mergers, due to the rent-

generating effect of a more concentrated market structure.

The welfare effect of cross-border mergers, on the other hand, is given

by

∆Wj =a2 (3b+ c) b

¡αβΨ− 4Γ (2b+ c)2 (3b+ c)3

¢λ2 (7b+ c)2 (2b+ c)2

+ (2 (1− α) + αθc) ,

(41)

where

β := 36b2 + 27bc+ 4c2,

Γ := 972b4 + 1359b3c+ 530b2c2 + 79bc3 + 4c4,

Ψ := 4 (2b+ c)¡c4 + 19bc3 + 115b2c2 + 267b3c+ 294b4

¢(3b+ c)2

−bc2α¡36b2 + 27bc+ 4c2

¢ ¡7bc+ 4b2 + c2

¢> 0.

The welfare effect of cross-border mergers clearly depends on how private

profits are evaluated. If α is sufficiently low, cross-border mergers are

only preferable if they yield sufficient synergies. The reason is that a

lower value of α increases the social loss of not being able to extract

all rents in the equilibrium with cross-border mergers. On the other

20

hand, if α is sufficiently high, it can easily be shown that cross-border

mergers are always welfare improving, regardless of merger synergies. In

the limit, when α → 1, there is no welfare loss associated with positive

profits and a more concentrated market structure increases total rent

generation in equilibrium.

Finally, comparing domestic versus cross-border mergers, the welfare

gain when firms merge domestically, is given by

∆Wj =a2b¡4Φ (3b+ c)4 − αβΩ

¢(10bc+ 20b2 + c2)2 λ2

−K (2− θd − α (2− θc)) , (42)

where

Φ := 10 368b6+18 432b5c+13 552b4c2+5140b3c3+1032b2c4+103bc5+4c6,

Ω := 4¡3600b6 + 5376b5c+ 3532b4c2 + 1288b3c3 + 259b2c4 + 26bc5 + c6

¢(3b+ c)2

−bc2α (4b+ c)¡8bc+ 8b2 + c2

¢ ¡36b2 + 27bc+ 4c2

¢> 0.

The ranking of these two market structures is quite straightforward. As-

sume that both types of merger are equally preferable in terms of cost

synergies, i.e., θd = θc. In this case, cross-border mergers are preferred

when α is sufficiently high, while domestic mergers are preferred other-

wise.

21

Let us now turn to the question of whether or not international har-

monisation of access regulation is desirable. We rely on the basic as-

sumption that no mergers will be undertaken unless there is a positive

profit gain for the merger participants. In our simple setting, this means

that mergers will only be undertaken in a non-cooperative regulation

regime. In this case, firms will have an incentive to merge cross-border.

From a welfare point-of-view, the question of whether or not to coor-

dinate regulation policies across borders introduces the following trade-

off. Non-cooperative regulation implies that national regulators engage

in a Prisoners’ Dilemma type of policy game, due to the incentives for

using access prices as instruments for strategic trade policy purposes.

These incentives are eradicated by international harmonisation. On the

other hand, such harmonisation will remove private incentives for poten-

tially welfare improving mergers. An evaluation of this trade-off reduces

to a comparison of welfare in the non-cooperative regulation regime with

cross-border mergers and the cooperative regime without mergers. Us-

ing the relevant equilibrium expressions, the welfare gain of regulatory

harmonisation is found to be

∆Wj =a2b¡4z (3b+ c)4 − αβΥ

¢(8b+ c)λ2

−K (2 (1− α) + αθc) , (43)

22

where

z := 324b3 + 252b2c+ 59bc2 + 4c3,

Υ = 4¡72b3 + 51b2c+ 14bc2 + c3

¢(3b+ c)2−bc2α

¡36b2 + 27bc+ 4c2

¢> 0.

We can immediately establish that harmonisation is always preferable

in the case of no merger synergies and α→ 1. However, positive merger

synergies might change this picture. In general, harmonisation is not so-

cially preferable ifK and θc are sufficiently large (i.e., if merger synergies

are sufficiently large in absolute terms).

References

[1] Armstrong, M. The Theory of Access Pricing and Interconnection,

in Cave, M. E.; Majumdar, S. K.and Vogelsang, I, ed. Handbook

of telecommunications economics. Volume 1. Structure, regulation

and competition, Elsevier Science, North-Holland 2002, pp. 295-384

[2] Baron, D.P. 1985, Non-cooperative regulation of a nonlocalized ex-

ternality, Rand Journal of Economics 16(4); 553-567

[3] Bond, E.W., Gresik, T.A., 1996. Regulation of Multinational Firms

with Two Active Governments: A Common Agency Approach.

Journal of Public Economics 59, 33—53.

[4] Calzolari, G. 2001 The Theory and Practice of Regulation with

Multinational Enterprises, Journal of Regulatory Economics. 20(2);

23

p. 191-211

[5] Calzolari, G. 2004 Incentive Regulation of Multinational Enter-

prises. International Economic Review, 45 (1), p 257-282.

[6] Haaparanta, P., 1996. Competition for Foreign Direct Investments,

Journal of Public Economics 63, 141—153.

[7] Huck, S. and K.A. Konrad 2004, Merger Profitability and Trade

Policy, The Scandinavian Journal of Economics, 106(1); 107 -

[8] Konrad, K.A., Lommerud, K.E., 2001. Foreign Direct Investment,

Intra-Firm Trade and Ownership Structure,. European Economic

Review 45, 475—494

[9] Laffont, JJ and J. Tirole 1991 Privatization and incentives, Journal

of Law, Economics and Organization 6: 1-32

[10] ––, 2000, Competition in Telecommunications, MIT press.

[11] Lommerud, K.E., O.R. Straume and L. Sørgard, 2005a, Down-

stream merger with upstream market power. European Economic

Review, April 2005.

[12] ––, 2005b, National versus international mergers in unionised

oligopoly. RAND Journal of Economics, forthcoming.

[13] Markusen, J.R., “The Boundaries of MNE and the Theory of Inter-

national Trade,” Journal of Economic Perspectives 9 (1995), 169—

89.

24

[14] Martimort, D., “Multi-Principaux avec Anti-Selection,” Annales

d’Economie et de Statistique, 28 (1992), 1—37.

[15] ––, “Exclusive Dealing, Common Agency, and Multiprincipals

Incentive Theory,” Rand Journal of Economics 27 (1996a), 1—31.

[16] ––, “The Multiprincipal Nature of Government,” European Eco-

nomic Review 40 (1996b), 673—85.

[17] Olsen, T. E., and P. Osmundsen, “Strategic Tax Competition; Im-

plications of National Ownership,” Journal of Public Economics 81

(2001), 253—77.

[18] Osmundsen, P., Hagen, K.P., Schjelderup, G., 1998. Internationally

Mobile Firms and Tax Policy. Journal of International Economics

45, 97—113.

[19] Stole, L. A., “Mechanism Design Under Common Agency,” Mimeo,

University of Chicago, 1992.

25