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Trade costs and multimarket collusion

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  • Eric W. Bond
  • Constantinos Syropoulos

Abstract

Contrary to conventional wisdom, this article argues that trade liberalization may facilitate collusion and reduce welfare. With the help of a duopoly model in which firms interact repeatedly in multiple markets, we first show that, if trade costs (i.e., tariffs/transport costs) and discount factors are not too high, efficient cartel agreements necessitate the cross-hauling of goods, as that entails lower deviation incentives. In this setting, we then demonstrate that reciprocal trade liberalization always raises total output when trade costs are within a range whose lower bound exceeds a threshold level, but may reduce total output (and thus be pro-collusive) when trade costs are below that threshold level. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 4 ()
Pages: 1080-1104

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Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:1080-1104

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Cited by:
  1. Jay Pil Choi & Heiko Gerlach, 2009. "International Antitrust Enforcement and Multi-Market Contact," CESifo Working Paper Series 2599, CESifo Group Munich.
  2. Dennis Sánchez Navarro, 2013. "Eficacia y asimetrías de los programas de delación en un contexto multimercado: un análisis del caso colombiano en el marco del TLC con Estados Unidos," ESTUDIOS ECONÓMICOS SIC 010905, SUPERINTENDENCIA DE INDUSTRIA Y COMERCIO.
  3. Akinbosoye, Osayi & Bond, Eric W. & Syropoulos, Constantinos, 2012. "On the stability of multimarket collusion in price-setting supergames," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 253-264.
  4. Collie, David R., 2009. "Tacit Collusion over Foreign Direct Investment under Oligopoly," Cardiff Economics Working Papers E2009/8, Cardiff University, Cardiff Business School, Economics Section.
  5. Martin C. Byford & Joshua S. Gans, 2014. "Collusion at the Extensive Margin," NBER Working Papers 20163, National Bureau of Economic Research, Inc.
  6. Bond, Eric W. & Syropoulos, Constantinos, 2012. "Economic integration and the sustainability of multimarket collusion," Economics Letters, Elsevier, vol. 117(1), pages 42-44.
  7. Feinberg, Robert M., 2013. "Multimarket contact and export entry," Economics Letters, Elsevier, vol. 121(1), pages 82-84.
  8. Sánchez Navarro, Dennis, 2013. "Eficacia y asimetrías de los programas de delación en un contexto multi-mercado: un análisis del caso colombiano en el marco del TLC con Estados Unidos
    [Efficacy and asymmetries of the leniency
    ," MPRA Paper 48699, University Library of Munich, Germany.

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