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This paper identifies the unique strategic issues of
cross-border mergers in a mixed oligopoly showing that the presence of a
welfare maximizing public firm increases the incentive for such mergers. The
well-known merger paradox that two-firm mergers are rarely profitable is substantially
relaxed in the cases of both linear and convex production costs. The ability
to identify profitable two-firm mergers in this context takes on added
importance as the recent cross-border merger wave often involved industries
with public firms.
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