Trade Liberalization and the Degree of Competition in International Duopoly

TY - JOUR

T1 - Trade Liberalization and the Degree of Competition in International Duopoly

AU - Ashournia, Damoun

AU - Hansen, Per Svejstrup

AU - Hansen, Jonas Worm

PY - 2013/11

Y1 - 2013/11

N2 - This paper analyzes how a reduction in trade costs influences the possibility for firms to engage in international cartels, and hence how trade liberalization affects the degree of competition. We consider a particular intra-industry trade model amended to allow for firms producing differentiated products. Our main finding is that trade liberalization may have an anti-competitive effect. We find that there is no unique relation between a reduction in trade costs and the degree of competition. When products are differentiated, a lowering of trade costs is pro-competitive if trade costs are initially high, but anti-competitive if trade costs initially are low. Hence, trade policy is not necessarily a substitute for competition policy

AB - This paper analyzes how a reduction in trade costs influences the possibility for firms to engage in international cartels, and hence how trade liberalization affects the degree of competition. We consider a particular intra-industry trade model amended to allow for firms producing differentiated products. Our main finding is that trade liberalization may have an anti-competitive effect. We find that there is no unique relation between a reduction in trade costs and the degree of competition. When products are differentiated, a lowering of trade costs is pro-competitive if trade costs are initially high, but anti-competitive if trade costs initially are low. Hence, trade policy is not necessarily a substitute for competition policy

U2 - 10.1111/roie.12090

DO - 10.1111/roie.12090

M3 - Journal article

SN - 0965-7576

VL - 21

SP - 1048

EP - 1059

JO - Review of International Economics

JF - Review of International Economics

IS - 5

ER -