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Competition policy in open economies

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  • Aidan Hollis
  • Lasheng Yuan

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.

Suggested Citation

  • Aidan Hollis & Lasheng Yuan, 2004. "Competition policy in open economies," International Economic Journal, Taylor & Francis Journals, vol. 18(2), pages 179-193.
    • Handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:179-193
    DOI: 10.1080/1016873042000228321
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    References listed on IDEAS

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    1. Hans-Werner Sinn, 1999. "The Competition between Competition Rules," CESifo Working Paper Series 192, CESifo.
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    Cited by:

    1. Duarte Brito & Daniel Magueta, 2014. "Horizontal Mergers, Entry and International Trade," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 923-943, November.
    2. Rikard Forslid & Jonas Häckner & Astri Muren, 2011. "Trade costs and the timing of competition policy adoption," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(1), pages 171-200, February.
    3. Juan Luis Jiménez & Javier Campos, 2004. "Efectos de la descentralización de la política de defensa de la competencia," Documentos de trabajo conjunto ULL-ULPGC 2004-09, Facultad de Ciencias Económicas de la ULPGC.

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    More about this item

    Keywords

    Competition policy; trade;

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