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Endogenous vertical restraints in international trade

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  • Raff, Horst
  • Schmitt, Nicolas

Abstract

This paper examines interbrand competition between a domestic and a foreign manufacturer who market their products through intermediaries. The contracts manufacturers offer these intermediaries are endogenous. In equilibrium contracts may specify exclusive territories (ET), depending on the degree of substitutability between products and the level and degree of transparency of trade barriers. Trade liberalization, through lower or more transparent barriers, may lead manufacturers to use ET, thereby substituting private anti-competitive arrangements for government-imposed barriers. This substitution may decrease competition and welfare, and thus create a role for competition policy in a freer trade environment.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 7 (October)
Pages: 1877-1889

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Handle: RePEc:eee:eecrev:v:49:y:2005:i:7:p:1877-1889

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References

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  1. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  3. Horn, Henrik & Levinsohn, James, 2001. "Merger Policies and Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 111(470), pages 244-76, April.
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  5. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  6. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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  8. Sadao Nagaoka, 2000. "International Trade Aspects of Competition Policy," NBER Chapters, in: Deregulation and Interdependence in the Asia-Pacific Region, NBER-EASE Volume 8, pages 55-78 National Bureau of Economic Research, Inc.
  9. Gal-Or, Esther, 1991. "Duopolistic vertical restraints," European Economic Review, Elsevier, vol. 35(6), pages 1237-1253, August.
  10. Gallini, Nancy T. & Hollis, Aidan, 1999. "A contractual approach to the gray market," International Review of Law and Economics, Elsevier, vol. 19(1), pages 1-21, March.
  11. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  12. Levinsohn, J., 1994. "Competition Policy and International Trade," Working Papers 362, Research Seminar in International Economics, University of Michigan.
  13. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
  14. Gary R. Saxonhouse, 1993. "What Does Japanese Trade Structure Tell Us about Japanese Trade Policy?," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 21-43, Summer.
  15. Robert C. Feenstra, 1987. "Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test," NBER Working Papers 2453, National Bureau of Economic Research, Inc.
  16. Martin Richardson, 2004. "Trade Policy and Access to Retail Distribution," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 676-688, 09.
  17. repec:fth:michin:362 is not listed on IDEAS
  18. Massimo Motta & Fabrizio Onida, 1997. "Trade Policy and Competition Policy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 56(1-2), pages 67-97, June.
  19. Joseph F. Francois & Henrik Horn, 1998. "Competition Policy in an Open Economy," Tinbergen Institute Discussion Papers 98-092/2, Tinbergen Institute.
  20. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
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Citations

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Cited by:
  1. Yongmin Chen & Jota Ishikawa & Zhihao Yu, 2002. "Trade Liberalization and Strategic Outsourcing," Carleton Economic Papers 02-12, Carleton University, Department of Economics, revised Jul 2004.
  2. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Ganslandt, Mattias & Maskus, Keith E., 2007. "Wholesale Price Discrimination and Parallel Imports," Working Paper Series 702, Research Institute of Industrial Economics.
  4. Horst Raff & Nicolas Schmitt, 2007. "Buyer Power in International Markets," Discussion Papers dp07-23, Department of Economics, Simon Fraser University.
  5. Ganslandt, Mattias & Maskus, Keith E., 2005. "Vertical Distribution, Parallel Trade, and Price Divergence in Integrated Markets," Working Paper Series 639, Research Institute of Industrial Economics.
  6. Horst Raff & Nicolas Schmitt, 2011. "Manufacturers and Retailers in the Global Economy," CESifo Working Paper Series 3508, CESifo Group Munich.
  7. Raff, Horst & Schmitt, Nicolas, 2004. "Exclusive Dealing and Common Agency in International Markets," Economics Working Papers 2004,09, Christian-Albrechts-University of Kiel, Department of Economics.
  8. Eckel, Carsten, 2009. "International trade and retailing," BERG Working Paper Series 63, Bamberg University, Bamberg Economic Research Group.
  9. Felbermayr, Gabriel J. & Jung, Benjamin, 2008. "Trade intermediaries, incomplete contracts, and the choice of export modes," Tübinger Diskussionsbeiträge 317, University of Tübingen, School of Business and Economics.

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