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

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 ?rms. In a model that endogenizes the cartel formation be- tween heterogeneous ?rms in their capacities and their marginal costs, the paper investigates how the decrease in trade tari?s a?ects the formation of such a cartel. Contrary to previous works in this area, the paper does not study how trade liberalization a?ects 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 ?rms. If they are large enough, price may increase after openness.

Author: Aya Ahmed
Volume: 2015.02
Publisher: INFER
Year: 2015
No. of pages: 20
Category: INFER working papers

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