Sustaining Collusion under Economic Integration *

In this paper, we aim at investigating from a game‐theory perspective whether trade liberalization can promote a collusive two‐way trade. We show that, under Cournot competition, economic integration is anti‐competitive if collusive trade is a possible outcome of the repeated game; under price competition, the likelihood of collusive trade is a necessary but not sufficient condition for trade liberalization to be pro‐competitive. Furthermore, we show that economic integration may increase the scope for collusion irrespective of the firms’ strategic variable.