Trade Liberalization and the Degree of Competition in International Duopoly

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This paper analyzes how a reduction in trade costs influences the possibility for firms to engage in international cartels, and hence how trade liberalization affects the degree of competition. We consider a particular intra-industry trade model amended to allow for firms producing differentiated products. Our main finding is that trade liberalization may have an anti-competitive effect. We find that there is no unique relation between a reduction in trade costs and the degree of competition. When products are differentiated, a lowering of trade costs is pro-competitive if trade costs are initially high, but anti-competitive if trade costs initially are low. Hence, trade policy is not necessarily a substitute for competition policy
Original languageEnglish
JournalReview of International Economics
Issue number5
Pages (from-to)1048–1059
Publication statusPublished - 2013

ID: 44163082