Trade imbalances and harmonization of competition policies
AbstractThe present study constructs a game in which the two countries strategically set competition policies in their respective non-tradable service sectors. These policies affect the countries' utilities through the presence of trade imbalances. We demonstrate that in the presence of persisting trade imbalances, in a Nash equilibrium, the trade-deficit country maintains perfect competition while the trade-surplus country restricts competition. This shows it highly difficult to harmonize their policies to achieve the first best state under the current international trade regime, which is centered around the principle of reciprocity.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 46 (2010)
Issue (Month): 4 (July)
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Web page: http://www.elsevier.com/locate/jmateco
Competition policy Trade imbalances Nash equilibrium Dynamic trade model;
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