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Fundamental difficulty underlying international harmonization of competition policies
Author(s) -
Yano Makoto,
Honryo Takakazu
Publication year - 2011
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2010.00154.x
Subject(s) - harmonization , economics , reciprocity (cultural anthropology) , competition (biology) , tariff , competition policy , partial equilibrium , international economics , nash equilibrium , microeconomics , international trade , general equilibrium theory , european union , psychology , social psychology , physics , acoustics , ecology , biology
The international harmonization of competition policies is widely perceived as a prime area for international policy discussion. We demonstrate that this harmonization, unlike a general tariff reduction, cannot be guided by the principle of reciprocity. Towards this end, we build a two‐country partial equilibrium model with non‐tradable service sectors. The governments play a game in which they choose the degrees of competition in their respective service sectors. In a Nash equilibrium, one country chooses the perfectly competitive policy whereas the other country chooses an imperfectly competitive policy. This equilibrium cannot be transformed into the first‐best state by the principle of reciprocity.