A Note on the Size of Trading Blocs, Market Power and World Welfare Effects
10 Pages Posted: 31 May 2016
Date Written: May 29, 2016
We prove that the normalization rule in Bond and Syropoulos (1996, Journal of International Economics 40, 411-437) that sets the world price of good 1 as the numéraire causes asymmetry in the Nash equilibrium. Such rule contradicts their symmetric assumption when one derives other blocs' optimum tariffs from their viewpoints. We further show that under symmetry their results are consistent only in the case of two trading blocs.
Keywords: Trading Blocs; Strategic Interactions; Normalization Problem; Nash Symmetric Game
JEL Classification: F02; F13; F15
Suggested Citation: Suggested Citation