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Trade Liberalization and Cartel Stability

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  • Lommerud, Kjell Erik
  • Sorgard, Lars

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. Copyright 2001 by Blackwell Publishing Ltd.

Suggested Citation

  • Lommerud, Kjell Erik & Sorgard, Lars, 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:343-55
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    Cited by:

    1. Bhattacharjea, Aditya & Sinha, Uday Bhanu, 2015. "Multi-market collusion with territorial allocation," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 42-50.
    2. Dirk Schindler & Guttorm Schjelderup, 2009. "Harmonization of Corporate Tax Systems and Its Effect on Collusive Behavior," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 599-621, August.
    3. Lommerud, Kjell Erik & Sorgard, Lars, 2003. "Entry in telecommunication: customer loyalty, price sensitivity and access prices," Information Economics and Policy, Elsevier, vol. 15(1), pages 55-72, March.
    4. repec:sek:jijoes:v:6:y:2017:i:2:p:45-67 is not listed on IDEAS
    5. Straume, Odd Rune, 2002. "Union collusion and intra-industry trade," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 631-652, May.
    6. Haufler, Andreas & Schjelderup, Guttorm, 2004. "Tacit collusion and international commodity taxation," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 577-600, March.
    7. Bond, Eric W. & Syropoulos, Constantinos, 2012. "Economic integration and the sustainability of multimarket collusion," Economics Letters, Elsevier, vol. 117(1), pages 42-44.
    8. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    9. Philipp J. H. Schröder, 2007. "Cartel Stability and Economic Integration," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 313-320, May.
    10. Aya Ahmed, 2015. "Asymmetric cartel formation under trade liberalization: Heterogeneous firms with capacity constraints," Working Papers 2015.02, International Network for Economic Research - INFER.
    11. Damoun Ashournia & Per Svejstrup Hansen & Jonas Worm Hansen, 2013. "Trade Liberalization and the Degree of Competition in International Duopoly," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 1048-1059, November.
    12. Akinbosoye, Osayi & Bond, Eric W. & Syropoulos, Constantinos, 2012. "On the stability of multimarket collusion in price-setting supergames," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 253-264.
    13. Haufler, A. & Schjelderup, G., 1999. "Tacit Collusion under Destination- and Origin-Based Commodity Taxation," Papers 8/99, Norwegian School of Economics and Business Administration-.
    14. Aldaba, Rafaelita M., 2008. "Can Imports Discipline Collusive Firms? The Case of the Philippine Cement Industry," Discussion Papers DP 2008-01, Philippine Institute for Development Studies.
    15. Dermot Leahy & J. Peter Neary, 2010. "Oligopoly And Trade," Economics, Finance and Accounting Department Working Paper Series n215-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    16. Dirk Schindler & Guttorm Schjelderup, 2006. "Company Tax Reform in Europe and its Effect on Collusive Behavior," CESifo Working Paper Series 1702, CESifo Group Munich.
    17. Roux, Catherine & Santos-Pinto, Luís & Thöni, Christian, 2016. "Home bias in multimarket Cournot games," European Economic Review, Elsevier, vol. 89(C), pages 361-371.
    18. Eric W. Bond & Constantinos Syropoulos, 2008. "Trade costs and multimarket collusion," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1080-1104.
    19. Riham Ahmed Ezzat & Nora Aboushady, 2015. "Do Telecom Restrictive Policies Matter for Telecom Performance? Evidence from MENA Countries," Working Papers 949, Economic Research Forum, revised Sep 2015.

    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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