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Price-cost margins and economic integration: How important is the pro-competitive effect?

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Abstract

In this paper we examine whether the conventional result of a greater degree of integration leading to lower price-cost margins (i.e., the pro-competitive effect), would hold when two countries integrate by forming a common market. We propose a general framework of reference, in order to assess the extent of the pro-competitive effect when the role of other variables is allowed for, both for a “small” and “large” common market. By solving the model, the price-cost margin of domestic firms would depend on a set of variables in addition to trade costs with the partner country, which might eventually offset the conventional result.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/62.

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Length: 14 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_62

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Keywords: Economic integration; Pro-competitive effect; Price-cost margins.;

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  1. Oscar Bajo Rubio & Carmen Díaz-Roldán, . "A General Framework for the Macroeconomic Analysis of Monetary Unions," Working Papers on International Economics and Finance 01-06, FEDEA.
  2. James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
  3. Chris Allen & Michael Gasiorek & Alasdair Smith, 1998. "The competition effects of the Single Market in Europe," Economic Policy, CEPR & CES & MSH, vol. 13(27), pages 439-486, October.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  5. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers 631, Board of Governors of the Federal Reserve System (U.S.).
  6. Haaland, J.I. & Wooton, I., 1991. "Market Integration, Competition, and Welfare," Papers 499, Stockholm - International Economic Studies.
  7. Harry Flam, 1992. "Product Markets and 1992: Full Integration, Large Gains?," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 7-30, Fall.
  8. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
  9. Bottasso, Anna & Sembenelli, Alessandro, 2001. "Market power, productivity and the EU Single Market Program: Evidence from a panel of Italian firms," European Economic Review, Elsevier, vol. 45(1), pages 167-186, January.
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Cited by:
  1. Antonio G. Gómez-Plana & Oscar Bajo-Rubio, . "Algunos efectos del mercado único europeo sobre la economía española: Un análisis a través de un modelo de equilibrio general aplicado," Studies on the Spanish Economy 213, FEDEA.

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