A Note on the Size of Trading Blocs, Market Power and World Welfare Effects

Chang, Winston W.; Chen, Tai-Liang; Saito, Tetsuya

doi:10.2139/ssrn.2786379

A Note on the Size of Trading Blocs, Market Power and World Welfare Effects

10 Pages Posted: 31 May 2016

See all articles by Winston W. Chang

Winston W. Chang

University at Buffalo - Department of Economics

Tetsuya Saito

Nihon University College of Economics

Date Written: May 29, 2016

Abstract

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

Chang, Winston W. and Chen, Tai-Liang and Saito, Tetsuya, A Note on the Size of Trading Blocs, Market Power and World Welfare Effects (May 29, 2016). Available at SSRN: https://ssrn.com/abstract=2786379 or http://dx.doi.org/10.2139/ssrn.2786379