Competition policy in open economies
What is the effect of national antitrust policies in a world with international trade? Traditionally, economic analysis of mergers has assumed a closed economy, which—as we show in this paper—may lead to errant policy in an open economy. We use a very simple model to highlight some key issues in optimal competition policy when trade is important, and compare the nationally optimal number of firms with the globally optimal number of firms in a free trade environment. We show that countries will choose a competition policy that is 'too strict' in the sense that they will prefer to have more firms than is globally optimal, implying that convergence in competition policy should generally lead to a reduction in the number of firms. We also examine the strategic interaction between domestic and foreign competition policy when there is free trade and show that small and large countries will react very differently to changes in the other's policies.
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Volume (Year): 18 (2004)
Issue (Month): 2 ()
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- Barros, Pedro P. & Cabral, Luis, 1994. "Merger policy in open economies," European Economic Review, Elsevier, vol. 38(5), pages 1041-1055, May.
- Farrell, J. & Shapiro, C., 1988.
"Horizontal Mergers: An Equilibrium Analysis,"
17, Princeton, Woodrow Wilson School - Discussion Paper.
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Horn, Henrik & Levinsohn, James A, 2000.
"Merger Policies And Trade Liberalization,"
CEPR Discussion Papers
2459, C.E.P.R. Discussion Papers.
- Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
- Horn, H. & Levinsohn, J., 1998. "Merger Policies and Trade Liberalization," Working Papers 420, Research Seminar in International Economics, University of Michigan.
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