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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.

Suggested Citation

  • Eric W. Bond & Constantinos Syropoulos, 2008. "Trade costs and multimarket collusion," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1080-1104, December.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:1080-1104
    DOI: 10.1111/j.1756-2171.2008.00051.x
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    Cited by:

    1. Stéphanie Boulenger & Marcelin Joanis, 2015. "Analyse économique des marchés publics dans l’industrie de la construction au Québec," CIRANO Project Reports 2015rp-23, CIRANO.
    2. Byford, Martin C. & Gans, Joshua S., 2014. "Collusion at the extensive margin," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 75-83.
    3. 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.
    4. Andreas Freitag & Catherine Roux & Christian Thöni, 2021. "Communication And Market Sharing: An Experiment On The Exchange Of Soft And Hard Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 175-198, February.
    5. Damoun Ashournia & Per Svejstrup Hansen & Jonas Worm Hansen, 2013. "Trade Liberalization and the Degree of Competition in International Duopoly," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 1048-1059, November.
    6. Robert M. Feinberg, 2015. "“Exports‐at‐Risk”: The Effect of Multimarket Contact in International Trade," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 769-781, January.
    7. Bhattacharjea, Aditya & Sinha, Uday Bhanu, 2015. "Multi-market collusion with territorial allocation," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 42-50.
    8. Roux, Catherine & Santos-Pinto, Luís & Thöni, Christian, 2016. "Home bias in multimarket Cournot games," European Economic Review, Elsevier, vol. 89(C), pages 361-371.
    9. Feinberg, Robert M., 2013. "Multimarket contact and export entry," Economics Letters, Elsevier, vol. 121(1), pages 82-84.
    10. Kuo-Feng Kao & Cheng-Hau Peng, 2017. "Trade liberalization, forward-looking firms, and welfare," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 999-1016, November.
    11. 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, May.
    12. Sandro Shelegia, 2012. "Is the Competitor of my Competitor also my Competitor?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 927-963, December.
    13. Gaussens, Olivier & Lecostey, Sophie & Simon, Geoffray, 2011. "Intégration internationale et concurrence effective : quelques apports de la théorie de l’oligopole," L'Actualité Economique, Société Canadienne de Science Economique, vol. 87(4), pages 481-502, décembre.
    14. Aya Ahmed, 2015. "Asymmetric cartel formation under trade liberalization: Heterogeneous ï¬ rms with capacity constraints," Working Papers 2015.02, International Network for Economic Research - INFER.
    15. 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 10905, Superintendencia de Industria y Comercio.
    16. Agnosteva, Delina & Syropoulos, Constantinos & Yotov, Yoto, 2017. "Multimarket Linkages, Cartel Discipline and Trade Costs," School of Economics Working Paper Series 2017-12, LeBow College of Business, Drexel University.
    17. Levenstein, Margaret C. & Sivadasan, Jagadeesh & Suslow, Valerie Y., 2015. "The effect of competition on trade: Evidence from the collapse of international cartels," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 56-70.
    18. Aya Elewa, 2019. "Trade Openness and Domestic Market Share," Journal of Industry, Competition and Trade, Springer, vol. 19(3), pages 441-463, September.
    19. Shiva Sikdar, 2023. "Trade, Transport Emissions and Multimarket Collusion with Border Adjustments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(3), pages 407-432, November.
    20. O. Cem Ozturk & Necati Tereyagoglu, 2022. "Distribution Channel Relationships in the Presence of Multimarket Contact," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 218-238, January.
    21. Bond, Eric W. & Syropoulos, Constantinos, 2012. "Economic integration and the sustainability of multimarket collusion," Economics Letters, Elsevier, vol. 117(1), pages 42-44.
    22. 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 pro," MPRA Paper 48699, University Library of Munich, Germany.
    23. 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.
    24. Delina Agnosteva & Constantinos Syropoulos & Yoto V. Yotov, 2020. "Preferential Trade Liberalization with Endogenous Cartel Discipline: Implications for Welfare and Optimal Trade Policies," CESifo Working Paper Series 8554, CESifo.

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