Asymmetric cartel formation under trade liberalization: Heterogeneous ï¬ rms with capacity constraints

Aya Ahmed ()
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Aya Ahmed: Paris School of Economics

No 2015.02, Working Papers from International Network for Economic Research - INFER

Abstract: In a context of trade liberalization , this paper is interested in studying the impact of a decline in trade costs on cartel formation between foreign and domestic firms. In a model that endogenizes the cartel formation be- tween heterogeneous firms in their capacities and their marginal costs, the paper investigates how the decrease in trade tariffs affects the formation of such a cartel. Contrary to previous works in this area, the paper does not study how trade liberalization affects cartel stability, however it is in- terested in testing whether the cartel becomes more or less inclusive after this openness. The model predicts that the price prevailing on the mar- ket following trade liberalization depends on capacity distribution of the foreign firms. If they are large enough, price may increase after openness.

Pages: 20 pages
Date: 2015
New Economics Papers: this item is included in nep-com and nep-int
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