Due to the extensive work on why mergers take place our understanding of merger
incentives has improved. However, there are not many studies examining how differences in
pollution parameters between post and pre-merger markets affect the attractiveness of merger
deals. This study examines conditions under which the attractiveness of a merger deal increases
in a Cournot market with product differentiation and environmental externality. Our findings
suggest that, (i) the attractiveness of a deal increases as products become more differentiated, (ii)
merger deals could result in lower optimal emission tax post-merger, (iii) the attractiveness of a
deal is more likely to increase if the merged entity is not too pollution-intensive post-merger
relative to its pre-merger pollution intensity; and (iv) when merged entities modify products to be
greener, they are more likely to benefit more from the deal if they are not too pollution-intensive.
