Movements towards Free Trade and Domestic Market Performance with Imperfect Competition

Thomas Ross

Canadian Journal of Economics, 1988, vol. 21, issue 3, 507-24

Abstract: This paper studies the response of a dominant domestic oligopoly to the reduction in the rat e of a protective tariff. The issue here is whether domestic market p erformance is improved through a movement toward free trade alone. Pu t another way, is free trade always a substitute for competition poli cy? The author finds that the lower tariff may lead to inferior domes tic market performance. The direction of the change and its magnitude are functions of the shape of the import supply function, the degree of competition between oligopolists, and whether or not entry is pos sible. Thus, there is reason to believe that a strong competition pol icy may, in some markets, be complementary to freer trade.

Date: 1988
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