Trading Market Access for Competition Policy Enforcement

Bernard Hoekman () and Kamal Saggi ()

No 4110, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Motivated by discussions in the World Trade Organization (WTO) on multilateral disciplines with respect to competition law, we develop a two-country model that explores the incentives of a less-developed country (LDC) to offer increased market access (via a tariff reduction) in exchange for a ban on foreign export cartels by its developed country (DC) trading partner. We show that such a bargain is feasible and can generate a globally welfare maximizing outcome. We also explore the incentives for bilateral cooperation when the LDC uses transfers to ‘pay’ for competition enforcement by the DC. A comparison of the two cases shows that there exist circumstances in which the stick (i.e. the tariff) is more effective in sustaining bilateral cooperation than the carrot (i.e. the transfer). Furthermore, the scope for cooperation is maximized when both instruments are utilized. An implication of the analysis is that LDCs have incentives not to bind tariffs in the absence of an explicit WTO prohibition of export cartels.

Keywords: development; export cartels; market access; oligopoly (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
Date: 2003-11
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