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The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy

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  • Gatsios, Konstantine
  • Karp, Larry S.

Abstract

Partial cooperation in setting trade policy may be worse than no cooperation for countries who form a customs union. The paper investigates three situations where this is likely to occur. First, if the countries forming the union comprise too small a percentage of the non-competitive sector of the industry, their cooperation may be disadvantageous for essentially the same reason that a merger may be disadvantageous in oligopolistic industries. Second, even if the countries forming the union comprise the entire non-competitive sector of industry, cooperation on trade policy may be disadvantageous if industrial policy (e.g. investment subsidies) are chosen non-cooperatively. The reason is that cooperation in trade policy may exacerbate the inefficiencies created by non-cooperation at an earlier stage. Third, cooperation in choosing trade policies may encourage excessive investment by competitive importers and thus reduce the demand faced by the oligopolists.

Suggested Citation

  • Gatsios, Konstantine & Karp, Larry S., 1989. "The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy," Working Papers 51256, International Agricultural Trade Research Consortium.
    • Handle: RePEc:ags:iatrwp:51256
    DOI: 10.22004/ag.econ.51256
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    Cited by:

    1. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
    2. Aya Ahmed, 2015. "Asymmetric cartel formation under trade liberalization: Heterogeneous ï¬ rms with capacity constraints," Working Papers 2015.02, International Network for Economic Research - INFER.
    3. Karp, Larry, 1996. "Monopoly Power Can Be Disadvantageous in the Extraction of a Durable Nonrenewable Resource," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 825-849, November.
    4. Huizinga, Harry & Nielsen, Søren Bo, 2005. "Capital Income Tax Coordination and the Income Tax Mix," Working Papers 24-2005, Copenhagen Business School, Department of Economics.
    5. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.
    6. Ngo Long, 2015. "Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature," Dynamic Games and Applications, Springer, vol. 5(4), pages 467-492, December.

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    Keywords

    International Relations/Trade;

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