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Economic integration and the sustainability of multimarket collusion

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  • Bond, Eric W.
  • Syropoulos, Constantinos

Abstract

We examine the impact of (and links between) two types of economic integration on the stability of multimarket collusion when firms interact in quantities in segmented markets: (1) multilateral trade liberalization, captured by a reduction of trade costs across all markets; and (2) preferential trade liberalization, captured by an expansion in the size of individual markets while holding the level of external trade costs (tariffs) constant. In general, collusive stability is non-monotonically related to economic integration. In the case of multilateral liberalization, the effect depends on the initial level of trade costs and the extent of liberalization. However, on the average, the complete elimination of trade costs is pro-competitive when these costs are sufficiently high initially. In the case of regional integration, the effect of liberalization is pro-competitive when external trade barriers are sufficiently high, but anti-competitive when these barriers are sufficiently low.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 1 ()
Pages: 42-44

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Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:42-44

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Segmented markets; Multimarket contact; Collusive stability; Integration;

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  1. Nathan H. Miller, 2009. "Strategic Leniency and Cartel Enforcement," American Economic Review, American Economic Association, vol. 99(3), pages 750-68, June.
  2. Lommerund, K.E. & Sorgard, L., 1998. "Trade Liberalization and Cartel Stability," Norway; Department of Economics, University of Bergen 0198, Department of Economics, University of Bergen.
  3. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  4. Pinto, Brian, 1986. "Repeated games and the reciprocal dumping model of trade," Journal of International Economics, Elsevier, vol. 20(3-4), pages 357-366, May.
  5. Eric W. Bond & Constantinos Syropoulos, 2008. "Trade costs and multimarket collusion," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1080-1104.
  6. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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