Mergers between State-owned and Private Enterprises: The Impact on Carbon Emissions, Profits, and Welfare

In the context of China's vigorous implementation of mixed-ownership reforms, mergers between state-owned enterprises and private enterprises have become more frequent. This paper examines the impact of these horizontal mergers between enterprises of different ownership on carbon emissions, profits, social welfare, and consumer surplus. Before the merger, a private enterprise and an state-owned enterprise that invest in green technology to produce two products and compete on prices and carbon reductions are considered. The private (state-owned) enterprise aims to maximize profit (social welfare). After the merger, the private and state-owned enterprises merge into one firm. Due to economies of scale, the post-merger enterprise can enjoy cost savings from green technology investment. In line with the practice that merger sponsors may be different, two scenarios where the post-merger enterprise is still either a PE or an SOE are considered. The study shows that, prior to the merger, the state-owned enterprise contributes more (less) carbon emissions reduction than the private enterprise if the green technology investment cost is high (low). Moreover, if the cost saving is small (large), the merger always lowers (increases) the emission reduction. Additionally, when the post-merger enterprise is an state-owned enterprise (private enterprise), the post-merger profit is always lower (higher) than the total premerger profits. Nevertheless, if either the post-merger is an state-owned enterprise or private enterprise, the post-merger social welfare and consumer surplus could be higher than those of their premerger counterparts. We conduct a large number of numerical experiments to verify the robustness of our results and find that the proportion of environment, economy and society in sustainability will affect the performance of different merger models. Finally, we conduct a case study to prove the practicality of our results.