Sustaining Collusion under Economic Integration *

Luca Colombo and Paola Labrecciosa

Review of International Economics, 2007, vol. 15, issue 5, pages 905-915

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. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

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