Trade Liberalization and Cartel Stability

Kjell Erik Lommerud and Lars Sørgard

Review of International Economics, 2001, vol. 9, issue 2, 343-355

Abstract: Can reduced trade barriers promote a collusive understanding about not exporting into each others domestic markets? Reduced trade costs increase the short‐run gains from starting exporting, but can also make the long‐run punishment of such a strategy harsher. If collusion on prices is supported by a trigger strategy, a reduction in trade costs weakens competition in the sense that collusion is easier to sustain. In a corresponding model with collusion on quantities, this conclusion is reversed. The authors also discuss how results change if grim trigger strategies are replaced by stick‐and‐carrot punishments.

Date: 2001
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Working Paper: Trade Liberalization and Cartel Stability (1998)
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