Stepping Stones or Stumbling Blocks? Domestic Mergers and Cross‐Border Consolidation

ABSTRACT We build on empirical evidence showing that international acquisitions exhibit path dependence and often unfold as sequences of deals, and argue that domestic and cross‐border mergers are not necessarily isolated events. Specifically, we ask whether blocking a domestic merger that reduces consumer surplus in the short run could inadvertently preclude a subsequent cross‐border acquisition (by the same parties) that would raise consumer surplus in both the home and foreign markets. To address this question, we develop a Cournot model with increasing marginal costs and show that moderate, complementary synergies can make hybrid mergers—those combining domestic and cross‐border elements—both profitable and beneficial for consumer surplus, even when each merger on its own would not be viable and/or would harm consumers. Our analysis suggests that, in settings where such complementarities are plausible, the interaction and sequencing of domestic and cross‐border mergers may be relevant for assessing their long‐run welfare implications.