International Vertical Specializations, Imperfect Competition and Welfare

Jacques Olivier and Ai Ting Goh

No 4311, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper looks at the impact of international vertical specialization when the final good industry is imperfectly competitive. Final goods are assembled out of different fragments. In the absence of international vertical specialization all fragments required to produce a given final good must be produced in the same country. International vertical specialization unambiguously reduces the costs of production of all final good producers, albeit not necessarily in the same proportion. If the cost of production of a less efficient producer is reduced to a lesser extent than that of a more efficient producer, vertical specialization may lead to exit in the final good industry. This anti-competitive effect may be strong enough that international vertical specialization leads to a Pareto inferior outcome. On the other hand, we can characterize two sets of policies, which, combined with vertical specialization, are Pareto improving compared to autarky regardless of consumer preferences and of the form of competition in the final good industry.

Keywords: Fragmentation; Vertical specialization; Imperfect competition; Welfare; Anti-competitive effect of trade (search for similar items in EconPapers)
JEL-codes: F12 (search for similar items in EconPapers)
Date: 2004-03
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: International Vertical Specialization, Imperfect Competition and Welfare (2011)
Working Paper: International Vertical Specialization, Imperfect Competition and Welfare (2003)
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