| Content | This paper builds a general oligopolistic equilibrium model based on
Neary (2009. “International Trade in General Oligopolistic Equilibrium,”
University of Oxford and CEPR, Working Paper) to investigate the relationship
between trade liberalization and competition levels. In a closed economy, a
decrease in competition negatively affects a country’s welfare and reallocates
factors from low marginal cost sectors to high marginal cost sectors. However, in
an open economy with trade liberalization, the properties of factor reallocation
give a country the incentive to adopt a beggar-thy-neighbor policy, which
decreases its competition level and maximizes its own welfare under certain
conditions. Hence, international coordination of competition policies could
possibly increase both world welfare and trade. |
