How to counter union power? Equilibrium mergers in international oligopoly

We re-examine the common wisdom that cross-border mergers are the most effective merger strategy for firms facing powerful unions. In contrast, we obtain a domestic merger outcome whenever firms are sufficiently heterogeneous (in terms of productive efficiency and product differentiation). A domestic merger unfolds a wage-unifying effect which limits the union's ability to extract rents. When asymmetries among fims vanish, then cross-border mergers are the unique equilibrium. However, they may be either between symmetric or asymmetric firms. Social welfare is never higher under a domestic merger outcome than under a cross-border merger outcome.