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Price-Cost Margins and Economic Integration: How Important is the Pro-Competitive Effect?

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  • Oscar Bajo-Rubio
  • Carmen Díaz-Roldán
  • Antonio G. Gómez-Plana

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 FEDEA in its series Working Papers on International Economics and Finance with number 04-02.

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Handle: RePEc:fda:fdadef:04-02

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  1. 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, Elsevier, vol. 45(1), pages 167-186, January.
  2. Oscar Bajo Rubio & Carmen Díaz-Roldán, . "A General Framework for the Macroeconomic Analysis of Monetary Unions," Working Papers on International Economics and Finance, FEDEA 01-06, FEDEA.
  3. Haaland, Jan I. & Wooton, Ian, 1991. "Market Integration, Competition and Welfare," CEPR Discussion Papers, C.E.P.R. Discussion Papers 574, C.E.P.R. Discussion Papers.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Harry Flam, 1992. "Product Markets and 1992: Full Integration, Large Gains?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(4), pages 7-30, Fall.
  6. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 631, Board of Governors of the Federal Reserve System (U.S.).
  7. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
  8. Chris Allen & Michael Gasiorek & Alasdair Smith, 1998. "The competition effects of the Single Market in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(27), pages 439-486, October.
  9. 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.
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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, FEDEA 213, FEDEA.

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