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Asymmetric cartel formation under trade liberalization: Heterogeneous firms with capacity constraints

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  • Aya Ahmed

    () (Paris School of Economics)

Abstract

In a context of trade liberalization , this paper is interested in studying the impact of a decline in trade costs on cartel formation between foreign and domestic firms. In a model that endogenizes the cartel formation be- tween heterogeneous firms in their capacities and their marginal costs, the paper investigates how the decrease in trade tariffs affects the formation of such a cartel. Contrary to previous works in this area, the paper does not study how trade liberalization affects cartel stability, however it is in- terested in testing whether the cartel becomes more or less inclusive after this openness. The model predicts that the price prevailing on the mar- ket following trade liberalization depends on capacity distribution of the foreign firms. If they are large enough, price may increase after openness.

Suggested Citation

  • Aya Ahmed, 2015. "Asymmetric cartel formation under trade liberalization: Heterogeneous firms with capacity constraints," Working Papers 2015.02, International Network for Economic Research - INFER.
  • Handle: RePEc:inf:wpaper:2015.02
    as

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    File URL: http://www.infer-research.net/files_publications/WP_2015_02_Ahmed.pdf
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    References listed on IDEAS

    as
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    13. Damoun Ashournia & Per Svejstrup Hansen & Jonas Worm Hansen, 2013. "Trade Liberalization and the Degree of Competition in International Duopoly," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 1048-1059, November.
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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