Mergers and capital flight in unionised oligopolies: is there scope for a 'national champion' policy?

Abstract

Many policy makers seem to prefer domestic alternatives to cross-border mergers.We construct a model where cross-border mergers drive down union-set wages, domestic mergers have nonlabour cost synergies and policy evaluators care more about workers than capital owners. Apparently, the stage is set for “national champion” policies to be sensible. However, we also introduce the possibility of capital flight by allowing a domestic firm to move production abroad. Restrictive cross-border merger policies can then seriously backfire, since they do not necessarily bring about a domestic merger — but capital flight instead.