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Trading Market Access for Competition Policy Enforcement

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  • Hoekman, Bernard
  • Saggi, Kamal

Abstract

Motivated by discussions in the World Trade Organization (WTO) on multilateral disciplines with respect to competition law, we develop a two-country model that explores the incentives of a less-developed country (LDC) to offer increased market access (via a tariff reduction) in exchange for a ban on foreign export cartels by its developed country (DC) trading partner. We show that such a bargain is feasible and can generate a globally welfare maximizing outcome. We also explore the incentives for bilateral cooperation when the LDC uses transfers to ‘pay’ for competition enforcement by the DC. A comparison of the two cases shows that there exist circumstances in which the stick (i.e. the tariff) is more effective in sustaining bilateral cooperation than the carrot (i.e. the transfer). Furthermore, the scope for cooperation is maximized when both instruments are utilized. An implication of the analysis is that LDCs have incentives not to bind tariffs in the absence of an explicit WTO prohibition of export cartels.

Suggested Citation

  • Hoekman, Bernard & Saggi, Kamal, 2003. "Trading Market Access for Competition Policy Enforcement," CEPR Discussion Papers 4110, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4110
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    References listed on IDEAS

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    1. Carsten Fink & Aaditya Mattoo & Ileana Cristina Neagu, 2002. "Trade in International Maritime Services: How Much Does Policy Matter?," World Bank Economic Review, World Bank Group, vol. 16(1), pages 81-108, June.
    2. Horn, Henrik & Levinsohn, James, 2001. "Merger Policies and Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 111(470), pages 244-276, April.
    3. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, and International Economic Institutions," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 519-562.
    4. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-664, October.
    5. Auquier, A A & Caves, R E, 1979. "Monopolistic Export Industries, Trade Taxes, and Optimal Competition Policy," Economic Journal, Royal Economic Society, vol. 89(355), pages 559-581, September.
    6. Francois, Joseph F & Wooton, Ian, 2001. "Trade in International Transport Services: The Role of Competition," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 249-261, May.
    7. Brander, James A. & Spencer, Barbara J., 1984. "Trade warfare: Tariffs and cartels," Journal of International Economics, Elsevier, vol. 16(3-4), pages 227-242, May.
    8. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    9. Lynda Oswald & Valerie Suslow & Margaret Levenstein & Manuel Pastor, 2003. "International Price-Fixing Cartels and Developing Countries: A Discussion of Effects and Policy Remedies," Working Papers wp53, Political Economy Research Institute, University of Massachusetts at Amherst.
    10. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, January.
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    Cited by:

    1. Simon J. Evenett & Bernard M. Hoekman, 2006. "Economic Development and Multilateral Trade Cooperation," World Bank Publications, The World Bank, number 7412, June.
    2. Hoekman, Bernard & Saggi, Kamal, 2007. "Tariff bindings and bilateral cooperation on export cartels," Journal of Development Economics, Elsevier, vol. 83(1), pages 141-156, May.
    3. McCorriston, Steve & MacLaren, Donald, 2005. "Single-desk state trading exporters," European Journal of Political Economy, Elsevier, vol. 21(2), pages 503-524, June.

    More about this item

    Keywords

    development; export cartels; market access; oligopoly;

    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

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