Cross-country Emission Tax Effect Of Mergers


Recent studies show that mergers among polluting firms could affect the regulatory landscape of the industry and trigger a policy change. Using a two-country model, this study examines the effect of a merger size, as measured by the number of merging firms, on the optimal emission tax of another country. We show that, if pollution damages are not too large, a decline in the size of a merger reduces production and profits in that country, which affords a larger tax in the other country due to smaller profit-shifting concerns. On the other hand, if pollution damages are extremely large, a reduction in the size of a merger in one country reduces production in that country, but it also reduces production and emissions in the other country. Thus, the latter can induce a smaller emission tax. The change in the emission tax in both scenarios is consistent with cooperative outcomes.



Keywords and Phrases

cooperative emission tax; Merger and acquisition; non-cooperative emission tax; product differentiation; trans-boundary pollution

International Standard Serial Number (ISSN)

2517-2654; 0976-7479

Document Type

Article - Journal

Document Version


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Publication Date

01 Jun 2023