Price-cost margins and economic integration: How important is the pro-competitive effect?

Oscar Bajo-Rubio (), Carmen Diaz-Roldan () and Antonio Gómez Gómez-Plana ()

No E2004/62, Economic Working Papers at Centro de Estudios Andaluces from Centro de Estudios Andaluces

Abstract: In this paper we examine whether the conventional result of a greater degree of integration leading to lower price-cost margins (i.e., the pro-competitive effect), would hold when two countries integrate by forming a common market. We propose a general framework of reference, in order to assess the extent of the pro-competitive effect when the role of other variables is allowed for, both for a “small” and “large” common market. By solving the model, the price-cost margin of domestic firms would depend on a set of variables in addition to trade costs with the partner country, which might eventually offset the conventional result.

Keywords: Economic integration; Pro-competitive effect; Price-cost margins. (search for similar items in EconPapers)
JEL-codes: F15 F12 (search for similar items in EconPapers)
Date: 2004
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Working Paper: Price-Cost Margins and Economic Integration: How Important is the Pro-Competitive Effect?
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Persistent link: http://EconPapers.repec.org/RePEc:cea:doctra:e2004_62

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