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The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy

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  • Gatsios, Konstantine
  • Karp, Larry

Abstract

Partial cooperation in setting trade policy may be worse than no cooperation for countries who form a customs union. The paper investigates three situations where this is likely to occur. First, if the countries forming the union comprise too small a percentage of the non-competitive sector of the industry, their cooperation may be disadvantageous for essentially the same reason that a merger may be disadvantageous in oligopolistic industries. Second, even if the countries forming the union comprise the entire non-competitive sector of industry, cooperation on trade policy may be disadvantageous if industrial policy (e.g., investment subsidies) is chosen noncooperatively. Third, cooperation in choosing trade policies may encourage excessive investment by competitive importers and thus reduce the demand faced by the oligopolists.

Suggested Citation

  • Gatsios, Konstantine & Karp, Larry, 1989. "The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy," CEPR Discussion Papers 335, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:335
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    Cited by:

    1. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.
    2. Ngo Long, 2015. "Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature," Dynamic Games and Applications, Springer, vol. 5(4), pages 467-492, December.
    3. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
    4. Aya Ahmed, 2015. "Asymmetric cartel formation under trade liberalization: Heterogeneous ï¬ rms with capacity constraints," Working Papers 2015.02, International Network for Economic Research - INFER.
    5. Karp, Larry, 1996. "Monopoly Power Can Be Disadvantageous in the Extraction of a Durable Nonrenewable Resource," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 825-849, November.
    6. Huizinga, Harry & Nielsen, Søren Bo, 2005. "Capital Income Tax Coordination and the Income Tax Mix," Working Papers 24-2005, Copenhagen Business School, Department of Economics.

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