Is there a link between trade policy and competition policy?

Successive rounds of international trade negotiations have reduced trade barriers worldwide consistently over the past few decades. Simultaneously, the total volume of mergers worldwide has been growing at an enormous rate (42% per year over the period 1980-1999, according to the UN's World Development Report.) Has trade liberalization played an active role in encouraging those mergers? In a recent discussion paper, Amrita Ray Chaudhuri (TILEC) uses a dynamic dominant-firm model to examine this question. Domestic and cross-border mergers and demergers are allowed for. When firms are myopic and the dominant firm has a sufficiently high pre-merger capital share in any one country, trade liberalization causes the industry to become significantly more concentrated. When firms are forward-looking, this anti-competitive effect of
trade liberalization is mitigated. Tariff reduction from a prohibitive to a non-prohibitive level aligns merger patterns across countries and initiates merger (or demerger) waves simultaneously across countries, provided all firms are equally forward-looking. These results, thus, highlight the importance of taking into consideration existing industry structure and firms' discount rates whilst formulating competition policy in the face of trade liberalization.