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Trade Liberalization and Cartel Stability

Author

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  • Kjell Erik Lommerud
  • Lars Sørgard

Abstract

Can reduced trade barriers promote a collusive understanding about not exporting into each others domestic markets? Reduced trade costs increase the short‐run gains from starting exporting, but can also make the long‐run punishment of such a strategy harsher. If collusion on prices is supported by a trigger strategy, a reduction in trade costs weakens competition in the sense that collusion is easier to sustain. In a corresponding model with collusion on quantities, this conclusion is reversed. The authors also discuss how results change if grim trigger strategies are replaced by stick‐and‐carrot punishments.

Suggested Citation

  • Kjell Erik Lommerud & Lars Sørgard, 2001. "Trade Liberalization and Cartel Stability," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 343-355, May.
  • Handle: RePEc:bla:reviec:v:9:y:2001:i:2:p:343-355
    DOI: 10.1111/1467-9396.00284
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    Cited by:

    1. Haufler, A. & Schjelderup, G., 1999. "Tacit Collusion under Destination- and Origin-Based Commodity Taxation," Papers 8/99, Norwegian School of Economics and Business Administration-.
    2. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    3. Philipp J. H. Schröder, 2007. "Cartel Stability and Economic Integration," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 313-320, May.
    4. Andreas Freitag & Catherine Roux & Christian Thöni, 2021. "Communication And Market Sharing: An Experiment On The Exchange Of Soft And Hard Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 175-198, February.
    5. Rafaelita M. Aldaba, 2008. "Can Imports Discipline Collusive Firms? Case of the Philippine Cement Industry," Microeconomics Working Papers 22608, East Asian Bureau of Economic Research.
    6. Dermot Leahy & J. Peter Neary, 2013. "Oligopoly and Trade," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 7, pages 197-235, Palgrave Macmillan.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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