Trade Liberalization and Cartel Stability
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.
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Volume (Year): 9 (2001)
Issue (Month): 2 (May)
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