Market Segmentation, Market Integration and Tacit Collusion
Simon Fraser University; CESifo (Center for Economic Studies and Ifo Institute)
American University in Bulgaria
Center for Economic Studies Working Paper at University of Munich, No. 166
This paper shows that moving from market segmentation to market integration (i.e. firms can no longer discriminate among markets) may have anti-competitive effects in a repeated game setting in which a simple trigger strategy is the enforcement strategy. In particular, we show that two countries can never both experience pro-competitive gains and that two similar countries always both experience anti-competitive effects from market integration. We show that the same conclusions hold when trade liberalization is understood as being a decrease in bilateral barriers to trade followed by the switch from market segmentation to market integration.
JEL Classification: F12, F15, L41
Date posted: August 9, 1998