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Local Services and International Market Integration

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  • Horn, H.
  • Shy, O.

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.
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Suggested Citation

  • Horn, H. & Shy, O., 1993. "Local Services and International Market Integration," Papers 538, Stockholm - International Economic Studies.
  • Handle: RePEc:fth:stocin:538
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    References listed on IDEAS

    as
    1. Gabszewicz, Jean Jaskold, et al, 1981. "International Trade in Differentiated Products," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 527-534, October.
    2. Venables, Anthony J., 1990. "International capacity choice and national market games," Journal of International Economics, Elsevier, vol. 29(1-2), pages 23-42, August.
    3. Jaskold Gabszewicz, Jean & Shaked, Avner & Sutton, John & Thisse, Jacques-Francois, 1986. "Segmenting the market: The monopolist's optimal product mix," Journal of Economic Theory, Elsevier, vol. 39(2), pages 273-289, August.
    4. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-298, March.
    5. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    Keywords

    economic integration ; pricing ; consumption;

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