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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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1935-1704
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Trade Liberalization and Competition Levels

Pu Chen / Dingming Liu
  • Corresponding author
  • Wang Yanan Institute for Studies in Economics, Xiamen University, 422 Siming South Road, Xiamen, Fujian 361005, China
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Published Online: 2014-07-15 | DOI: https://doi.org/10.1515/bejte-2013-0019

Abstract

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.

Keywords: general oligopolistic equilibrium (GOLE); trade liberalization; competition policy

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About the article

Published Online: 2014-07-15

Published in Print: 2015-01-01


Citation Information: The B.E. Journal of Theoretical Economics, Volume 15, Issue 1, Pages 25–47, ISSN (Online) 1935-1704, ISSN (Print) 2194-6124, DOI: https://doi.org/10.1515/bejte-2013-0019.

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