Trade imbalances and harmonization of competition policies

Makoto Yano and Takakazu Honryo

Journal of Mathematical Economics, 2010, vol. 46, issue 4, 438-452

Abstract: The present study constructs a game in which the two countries strategically set competition policies in their respective non-tradable service sectors. These policies affect the countries' utilities through the presence of trade imbalances. We demonstrate that in the presence of persisting trade imbalances, in a Nash equilibrium, the trade-deficit country maintains perfect competition while the trade-surplus country restricts competition. This shows it highly difficult to harmonize their policies to achieve the first best state under the current international trade regime, which is centered around the principle of reciprocity.

Keywords: Competition; policy; Trade; imbalances; Nash; equilibrium; Dynamic; trade; model (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:46:y:2010:i:4:p:438-452

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