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Social-Welfare-Enhancing Collusion and Trade

Recent Advances in the Analysis of Competition Policy and Regulation, Joseph E. Harrington, Yannis Katsoulacos, and Pierre Regibeau, eds., pp. 140-160, Elgar Publishing, August 2012

Posted: 28 Oct 2012  

George Deltas

University of Illinois at Urbana-Champaign - Department of Economics

Alberto Salvo

National University of Singapore (NUS) - Department of Economics

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: 2012

Abstract

Deltas, Salvo and Vasconcelos (2011) develop a model of geographically separated markets with differentiated goods in which collusion (or merger to monopoly), by restricting trade relative to duopolistic competition, is beneficial for society and can be beneficial for consumers. In this chapter, we provide additional results as well as an extension of that model. We show that a social planner would further restrict trade than the perfect cartel would, and how the socially optimal market allocation can be induced through a system of taxes and subsidies, or through "anti-dumping" regulation. We generalize the model to allow for home biased consumer tastes and show that our original analysis is robust. We also consider whether autarky can improve social welfare over market-based trade regimes, in the spirit of Brander and Krugman (1983).

Keywords: Cross-hauling, Cartels, Coordinated Effects, Home Bias, Market Allocation Schemes, Home-market Principle, Two-way Trade

JEL Classification: F12, L41, D43

Suggested Citation

Deltas, George and Salvo, Alberto and Vasconcelos, Helder, Social-Welfare-Enhancing Collusion and Trade (2012). Recent Advances in the Analysis of Competition Policy and Regulation, Joseph E. Harrington, Yannis Katsoulacos, and Pierre Regibeau, eds., pp. 140-160, Elgar Publishing, August 2012. Available at SSRN: https://ssrn.com/abstract=2167515

George Deltas (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
450 Commerce West
Champaign, IL 61820
United States
217-333-4586 (Phone)
217-244-6678 (Fax)

Alberto Salvo

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

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