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Local Services and International Market Integration

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  • Horn, Henrik
  • Shy, Oz

Abstract

The consequences of international market integration are typically evaluated by comparing an equilibrium where international consumer arbitrage is impossible to a different equilibrium where arbitrage is assumed to be completely costless. This note suggests that this procedure tends to exaggerate the gains from integration since firms can still segment markets themselves after government imposed trade restrictions are removed. We develop a simple example with two products, one that is homogeneous across markets, and one that is bundled with a non-tradable, e.g., local services. Integration of the markets for the homogeneous product has the expected consequence of yielding product's price equalization across markets. However, integration of the markets for bundled products will leave the economy entirely unaffected.

Suggested Citation

  • Horn, Henrik & Shy, Oz, 1993. "Local Services and International Market Integration," Foerder Institute for Economic Research Working Papers 275578, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275578
    DOI: 10.22004/ag.econ.275578
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    References listed on IDEAS

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