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Competition policy in open economies

Competition policy in open economies What is the effect of national antitrust policies in a world with international trade? Traditionally, economic analysis of mergers has assumed a closed economy, which—as we show in this paper—may lead to errant policy in an open economy. We use a very simple model to highlight some key issues in optimal competition policy when trade is important, and compare the nationally optimal number of firms with the globally optimal number of firms in a free trade environment. We show that countries will choose a competition policy that is ‘too strict’ in the sense that they will prefer to have more firms than is globally optimal, implying that convergence in competition policy should generally lead to a reduction in the number of firms. We also examine the strategic interaction between domestic and foreign competition policy when there is free trade and show that small and large countries will react very differently to changes in the other's policies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Economic Journal Taylor & Francis

Competition policy in open economies

International Economic Journal , Volume 18 (2): 15 – Jun 1, 2004
16 pages

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References (13)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1743-517X
eISSN
1016-8737
DOI
10.1080/1016873042000228321
Publisher site
See Article on Publisher Site

Abstract

What is the effect of national antitrust policies in a world with international trade? Traditionally, economic analysis of mergers has assumed a closed economy, which—as we show in this paper—may lead to errant policy in an open economy. We use a very simple model to highlight some key issues in optimal competition policy when trade is important, and compare the nationally optimal number of firms with the globally optimal number of firms in a free trade environment. We show that countries will choose a competition policy that is ‘too strict’ in the sense that they will prefer to have more firms than is globally optimal, implying that convergence in competition policy should generally lead to a reduction in the number of firms. We also examine the strategic interaction between domestic and foreign competition policy when there is free trade and show that small and large countries will react very differently to changes in the other's policies.

Journal

International Economic JournalTaylor & Francis

Published: Jun 1, 2004

Keywords: Competition policy; trade

There are no references for this article.