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Cartel Stability and Economic Integration

Discussion Papers 432, 23 S.

Philipp J. H. Schröder

2004. Jul.

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This paper investigates the effect of economic integration on the ability of firms to maintain a collusive understanding about staying out of each other's markets. The paper distinguishes among different types of trade costs: ad valorem, unit, fixed. It is shown that for a sufficient reduction of ad valorem trade costs, a cartel supported by collusion on either quantities or prices will be weakened, thus integration is pro-competitive. If integration consists of a reductions in unit (fixed) trade costs a price setting cartel is strengthened (unaffected), while a quantity setting one is weakened.

JEL-Classification: F15;L13;L12;F12
Keywords: Collusive behavior; Trade liberalisation; Specific tariffs; Market access cost
Frei zugängliche Version: (econstor)