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Rules of Origin and Market Power

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  • Wanyu Chung
  • Carlo Perroni

Abstract

We study how regional content requirements in Free Trade Areas (FTAs) affect market power and market structure in concentrated intermediate goods markets. We show that content requirements increase oligopolistic markups beyond the level that would obtain under an equivalent import tariff, and we document patterns in Canadian export data and US producer price data that align with the model’s predictions: producers of intermediate goods charge comparatively higher prices when the associated final goods producers are more constrained by FTA origin requirements and by Most Favoured Nation (MFN) tariffs for both intermediate and final non-FTA goods.

Suggested Citation

  • Wanyu Chung & Carlo Perroni, 2020. "Rules of Origin and Market Power," CESifo Working Paper Series 8512, CESifo.
    • Handle: RePEc:ces:ceswps:_8512
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    References listed on IDEAS

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    Cited by:

    1. Wooton, Ian & Haaland, Jan I., 2021. "Divergent Integration," CEPR Discussion Papers 16040, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    free trade areas; content requirements; market power;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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