Trade costs and multimarket collusion
AbstractContrary 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 InfoArticle provided by RAND Corporation in its journal The RAND Journal of Economics.
Volume (Year): 39 (2008)
Issue (Month): 4 ()
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- Jay Pil Choi & Heiko Gerlach, 2009.
"International Antitrust Enforcement and Multi-Market Contact,"
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- Jay Pil Choi & Heiko Gerlach, 2012. "International Antitrust Enforcement And Multimarket Contact," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 635-658, 05.
- 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
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- 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.
- Bond, Eric W. & Syropoulos, Constantinos, 2012. "Economic integration and the sustainability of multimarket collusion," Economics Letters, Elsevier, vol. 117(1), pages 42-44.
- 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.
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