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The effect of competition on trade: Evidence from the collapse of international cartels

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  • Levenstein, Margaret C.
  • Sivadasan, Jagadeesh
  • Suslow, Valerie Y.

Abstract

How do changes in competitive intensity affect trade patterns? Some cartels may find it advantageous to eliminate cross-hauling and divide markets geographically. We exploit a quasi-natural experiment associated with increased antitrust enforcement to determine if market division strategies were used in seven recently-prosecuted international cartels. Since antitrust activity is unlikely to affect spatial patterns of demand and supply (other than through its effect on the competitive environment), enforcement-induced changes are ideally suited to study the effect of competition on trade patterns. Analyzing the cartels individually and as a group, we find no significant change in spatial patterns of trade following cartel breakup; in particular, there is no systematic change in the effect of distance on trade. These results suggest that cross-hauling is not uncommon under collusion and hence that the existence of cross-hauling by itself does not provide evidence of effective competition.

Suggested Citation

  • Levenstein, Margaret C. & Sivadasan, Jagadeesh & Suslow, Valerie Y., 2015. "The effect of competition on trade: Evidence from the collapse of international cartels," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 56-70.
    • Handle: RePEc:eee:indorg:v:39:y:2015:i:c:p:56-70
    DOI: 10.1016/j.ijindorg.2015.02.001
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    References listed on IDEAS

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    1. Arevik Gnutzmann-Mkrtchyan & Hoffstadt, 2020. "Use and Abuse of Antidumping by Global Cartels," CESifo Working Paper Series 8729, CESifo.
    2. Delina Agnosteva & Constantinos Syropoulos & Yoto Yotov, 2017. "Multimarket Linkages, Cartel Discipline and Trade Costs," School of Economics Working Paper Series 2017-12, LeBow College of Business, Drexel University.

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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