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Trade liberalization in vertically related markets

  • José J. Sempere Monerris

    ()

    (Universitat de València)

  • Rafael Moner Colonques

    ()

    (Universitat de València)

  • Amparo Urbano Salvador

    (Universitat de València)

This paper looks into the desirability of trade liberalization for manufacturers, retailers and consumers. The analysis compares the move from the autarky situation to either one of free trade that entails a change in the distribution system or not. We also examine whether the interests of manufacturers and retailers about the preferred distribution system coincide, provided trade opens. We find that market integration is beneficial to all agents only under certain conditions on the degree of market asymmetry and the degree of product differentiation. Interestingly, if integration entails a change in the distribution system, the conflict between manufacturers and retailers strengthens since only retailers prefer free trade when markets are not too asymmetric and when interbrand competition is sufficiently strong. Furthermore, consumers can be harmed by trade and, in a setting without exclusivities, one country may experience a welfare decrease. Finally, the analysis of the strategic choice concerning exclusivity clauses uncovers that retailers and manufacturers never agree about their preference for endogenous distribution systems.

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2010-09.

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Length: 42 pages
Date of creation: Mar 2010
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2010-09
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  1. Martin Richardson, . "Trade Policy and Access to Retail Distribution," EPRU Working Paper Series 97-23, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. ANDERSON, Simon P. & DONSIMONI, Marie-Paule & GABSZEWICZ, Jean J., . "Is international trade profitable to oligopolistic industries?," CORE Discussion Papers RP -865, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. CORDELLA, Tito, . "Trade liberalization and oligopolistic industries: a welfare appraisal," CORE Discussion Papers RP -1049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Kamal Saggi, 2006. "Preferential Trade Agreements And Multilateral Tariff Cooperation ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 29-57, 02.
  5. Massimo MOTTA & Jean-François THISSE & Antonio CABRALES, 1996. "On the Persistence of Leadership or Leapfrogging in International Trade," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9625, Université de Lausanne, Faculté des HEC, DEEP.
  6. Cuberes, David & Dougan, William, 2009. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," MPRA Paper 17744, University Library of Munich, Germany.
  7. Francesco Turino, 2009. "Non-price Competition, Real Rigidities and Inflation Dynamics," Working Papers. Serie AD 2009-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Martin Menner, 2007. "The role of search frictions for output and inflation dynamics: a Bayesian assessment," Economics Working Papers we076235, Universidad Carlos III, Departamento de Economía.
  9. Antonio Cabrales & Massimo Motta, 1996. "Country asymmetries, endogenous product choice and the speed of trade liberalization," Economics Working Papers 259, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1998.
  10. repec:dgr:uvatin:20080019 is not listed on IDEAS
  11. 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 527-34, October.
  12. Maliar, Lilia & Maliar, Serguei & Valli, Fernando, 2010. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 42-49, January.
  13. Raff, Horst & Schmitt, Nicolas, 2005. "Endogenous vertical restraints in international trade," European Economic Review, Elsevier, vol. 49(7), pages 1877-1889, October.
  14. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
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