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Previous studies have examined welfare and production effects of a two-firm merger or a merger among a given set of firms. We argue that it is important to examine how effects differ depending on the number of combining firms (size of the merger). A significant number of real-world mergers involve more than two firms, merging either simultaneously or immediately one after the other. We adopt an international framework to examine the effect of changing the number of merging firms on (local and foreign) production, emissions, welfare and optimal taxation. Our analysis illustrates that most merger theories are neutral to variables most important for merger analysis. Our results suggest that when the size of a merger increases, the effect on: (i) production and emissions depends on the oligopolistic interaction of firms within and across countries, (ii) welfare depends on a combination of three factors: pollution intensities, product differentiation across countries and the initial size of the merger, and (iii) optimal taxation depends on damages from pollution and the difference between output level of each merging firm and each outsider.
