Trade and Competition Policies: Concordia Discors?

In a simple model of trade and competition policies we show that the abolition of trade restrictions may lead to governments independently choosing more competitive competition policies. Subsequent co-ordination of competition policy involves encouraging less competitive behaviour than when such policies are not co-ordinated and may involve disharmonisation, in a sense made clear in the paper. Adding a third country, simulation results indicate that non-member concerns about customs union formation may be well-founded, particularly when the union goes beyond mere trade policy co-ordination (which may be needed to make it attractive to members in the first place).