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Mergers and the Demand for Protectionism
Current enforcement practice does not consider how mergers alter the merging parties‘ incentives to petition for trade protection. I document mergers between domestic producers across jurisdictions that are followed by tariff petitions. I develop a model to characterize the trade-policy channel of mergers. Theoretically, a domestic merger raises the profitability of tariffs when offshoring is unavailable; once offshoring is possible, the effect becomes ambiguous. I apply this framework to a merger between domestic producers in the U.S. appliance industry. Empirically, I find that when import competition is weak, the merging parties prefer to lower their own costs through offshoring; when import competition is strong, the merger makes it more profitable for them to raise their foreign rivals‘ costs through tariffs. The resulting consumer harm is comparable in magnitude to the direct market-power effect. A hypothetical cross-border merger reduces the profitability of tariffs in this market.
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