A Two-Country Game of Competition Policies
Keio University - Faculty of Economics
Columbia University - Columbia Business School - Economics Department
Review of International Economics, Vol. 19, No. 2, pp. 207-218, 2011
Recently a number of studies have recognized that trade policy can be substituted for by competition policy. This study demonstrates, however, that there is a fundamental difference in the working of terms-of-trade effects between competition policy and tariff policy and that if countries optimally set their respective competition policies, it is unlikely to result in a tariff-war-like state in which all countries adopt distortionary policies. Instead, in a Nash equilibrium, one country maintains perfect competition in its domestic service sector while the other country tolerates imperfect competition.
Number of Pages in PDF File: 12
Date posted: April 13, 2011