Premium
Sustaining Collusion under Economic Integration *
Author(s) -
Colombo Luca,
Labrecciosa Paola
Publication year - 2007
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2007.00664.x
Subject(s) - collusion , cournot competition , economics , outcome (game theory) , competition (biology) , economic integration , free trade , scope (computer science) , international economics , microeconomics , liberalization , trade barrier , international trade , variable (mathematics) , industrial organization , market economy , ecology , mathematical analysis , mathematics , computer science , programming language , biology
Abstract 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.