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Economic integration and the sustainability of multimarket collusion

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  • Bond, Eric W.
  • Syropoulos, Constantinos

Abstract

We examine the impact of (and links between) two types of economic integration on the stability of multimarket collusion when firms interact in quantities in segmented markets: (1) multilateral trade liberalization, captured by a reduction of trade costs across all markets; and (2) preferential trade liberalization, captured by an expansion in the size of individual markets while holding the level of external trade costs (tariffs) constant. In general, collusive stability is non-monotonically related to economic integration. In the case of multilateral liberalization, the effect depends on the initial level of trade costs and the extent of liberalization. However, on the average, the complete elimination of trade costs is pro-competitive when these costs are sufficiently high initially. In the case of regional integration, the effect of liberalization is pro-competitive when external trade barriers are sufficiently high, but anti-competitive when these barriers are sufficiently low.

Suggested Citation

  • Bond, Eric W. & Syropoulos, Constantinos, 2012. "Economic integration and the sustainability of multimarket collusion," Economics Letters, Elsevier, vol. 117(1), pages 42-44.
  • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:42-44
    DOI: 10.1016/j.econlet.2012.04.052
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    References listed on IDEAS

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    1. Lommerud, Kjell Erik & Sorgard, Lars, 2001. "Trade Liberalization and Cartel Stability," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 343-355, May.
    2. Nathan H. Miller, 2009. "Strategic Leniency and Cartel Enforcement," American Economic Review, American Economic Association, vol. 99(3), pages 750-768, June.
    3. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    4. George Deltas & Alberto Salvo & Helder Vasconcelos, 2012. "Social-Welfare-Enhancing Collusion and Trade," Chapters,in: Recent Advances in the Analysis of Competition Policy and Regulation, chapter 7 Edward Elgar Publishing.
    5. Eric W. Bond & Constantinos Syropoulos, 2008. "Trade costs and multimarket collusion," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1080-1104.
    6. Pinto, Brian, 1986. "Repeated games and the reciprocal dumping model of trade," Journal of International Economics, Elsevier, vol. 20(3-4), pages 357-366, May.
    7. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
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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.

    More about this item

    Keywords

    Segmented markets; Multimarket contact; Collusive stability; Integration;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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