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Trade Bloc Formation Under Imperfect Competition

  • Conconi, P.

We examine the endogenous formation of trade blocs when markets are characterized by imperfect competition and governments use import tariffs and export subsidies to alter the strategic interactions between oligopolistic firms. Using a simple model of intra-industry trade between three ex-ante symmetric countries, we find that, while 'pure' customs unions - entailing tariff cooperation only - are stepping stones towards global free trade, 'impure' customs unions - involving the coordinated use of both tariffs and subsidies - are stumbling blocs against it.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp571.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 571.

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Length: 32 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:wrk:warwec:571
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  3. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers 513, Queen's University, Department of Economics.
  4. Collie, David R, 1997. "Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 504-20, October.
  5. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March.
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  8. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tarriff Cooperation During the Formation of Regional Free Trade Areas," NBER Working Papers 4364, National Bureau of Economic Research, Inc.
  9. Kose, M Ayhan & Riezman, Raymond, 2000. "Understanding the Welfare Implications of Preferential Trade Agreements," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 619-33, November.
  10. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  11. Horstmann, Ignatius J. & Markusen, James R., 1986. "Up the average cost curve: Inefficient entry and the new protectionism," Journal of International Economics, Elsevier, vol. 20(3-4), pages 225-247, May.
  12. Dixit, Avinash, 1988. "Anti-dumping and countervailing duties under oligopoly," European Economic Review, Elsevier, vol. 32(1), pages 55-68, January.
  13. Kyle Bagwell & Robert W. Staiger, 1996. "Strategic Export Subsidies and Reciprocal Trade Agreements: The Natural Monopoly Case," Discussion Papers 1156, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Jeremy I. Bulow & John Geanakoplos & Paul D. Klemperer, 1983. "Multimarket Oligopoly," Cowles Foundation Discussion Papers 674, Cowles Foundation for Research in Economics, Yale University.
  15. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  16. James A. Brander & Barbara J. Spencer, 1983. "Trade Warfare: Tariffs and Cartels," NBER Working Papers 1193, National Bureau of Economic Research, Inc.
  17. Brian R. Copeland, 1990. "Strategic Interaction among Nations: Negotiable and Non-negotiable Trade Barriers," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 84-108, February.
  18. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  19. Martin Richardson, 1994. "Customs Unions and Domestic Taxes," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 537-50, August.
  20. Carsten Kowalczyk & Tomas Sjostrom, 1993. "Bringing GATT into the Core," NBER Working Papers 4343, National Bureau of Economic Research, Inc.
  21. Gatsios, Konstantine & Karp, Larry, 1995. "Delegation in a general equilibrium model of customs unions," European Economic Review, Elsevier, vol. 39(2), pages 319-333, February.
  22. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  23. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
  24. Venables, Anthony J, 1988. "International Capacity Choice and National Market Games," CEPR Discussion Papers 277, C.E.P.R. Discussion Papers.
  25. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
  26. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
  27. Collie, David, 1993. "Profit-Shifting Export Subsidies and the Sustainability of Free Trade," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(4), pages 408-19, November.
  28. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
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