Mergers between local public firms
The North American Journal of Economics and Finance 51: (2020) // Article ID 100856
Laburpena
[EN]We consider a country made up of two regions, where each region owns a local public firm and a
domestic private one. A national authority decides whether or not to merge the two local public
firms. The result depends on whether the goods produced by the firms are homogeneous, sub-
stitutes or complements. We find that if the two local public firms produce the same good, the
national authority is indifferent as to whether to merge or not. When local public firms produce
different goods two cases arise. First, if the firms in each region produce homogeneous goods the
national authority merges the two local public firms when the goods are complements, in-
dependent in demand and weak substitutes. Second, if the firms in each region produce het-
erogeneous goods the national authority merges the two local public firms only when the goods
are close complements. Therefore, there is greater scope for mergers in the former case than in
the later.