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Trade Liberalization and Competition Levels

Author

Listed:
  • Chen Pu

    (School of Economics, Renmin University of China, Beijing, China)

  • Liu Dingming

    (Wang Yanan Institute for Studies in Economics, Xiamen University, 422 Siming South Road, Xiamen, Fujian 361005, China)

Abstract

This paper builds a general oligopolistic equilibrium model based on Neary (2009. “International Trade in General Oligopolistic Equilibrium,” University of Oxford and CEPR, Working Paper) to investigate the relationship between trade liberalization and competition levels. In a closed economy, a decrease in competition negatively affects a country’s welfare and reallocates factors from low marginal cost sectors to high marginal cost sectors. However, in an open economy with trade liberalization, the properties of factor reallocation give a country the incentive to adopt a beggar-thy-neighbor policy, which decreases its competition level and maximizes its own welfare under certain conditions. Hence, international coordination of competition policies could possibly increase both world welfare and trade.

Suggested Citation

  • Chen Pu & Liu Dingming, 2015. "Trade Liberalization and Competition Levels," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(1), pages 25-47, January.
    • Handle: RePEc:bpj:bejtec:v:15:y:2015:i:1:p:23:n:1
    DOI: 10.1515/bejte-2013-0019
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    References listed on IDEAS

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    1. Makoto Yano & Takakazu Honryo, 2011. "A Two‐Country Game of Competition Policies," Review of International Economics, Wiley Blackwell, vol. 19(2), pages 207-218, May.
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    4. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    5. Yano, Makoto & Honryo, Takakazu, 2010. "Trade imbalances and harmonization of competition policies," Journal of Mathematical Economics, Elsevier, vol. 46(4), pages 438-452, July.
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