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Price-Cost Margins and Economic Integration: How Important is the Pro-Competitive Effect?

Author

Listed:
  • Oscar Bajo-Rubio

    (Universidad de Castilla-La Mancha and centrA)

  • Carmen Díaz-Roldán

    (Universidad de Castilla-La Mancha and centrA)

  • Antonio G. Gómez-Plana

    (Universidad Pública de Navarra)

Abstract

In this paper we examine whether the conventional result of a greater degree of integration leading to lower price-cost margins (i.e., the pro-competitive effect), would hold when two countries integrate by forming a common market. We propose a general framework of reference, in order to assess the extent of the pro-competitive effect when the role of other variables is allowed for, both for a "small" and "large" common market. By solving the model, the price-cost margin of domestic firms would depend on a set of variables in addition to trade costs with the partner country, which might eventually offset the conventional result.

Suggested Citation

  • Oscar Bajo-Rubio & Carmen Díaz-Roldán & Antonio G. Gómez-Plana, 2004. "Price-Cost Margins and Economic Integration: How Important is the Pro-Competitive Effect?," Working Papers 04-02, Asociación Española de Economía y Finanzas Internacionales.
    • Handle: RePEc:aee:wpaper:0402
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    References listed on IDEAS

    as
    1. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    2. Haaland, Jan I. & Wooton, Ian, 1991. "Market Integration, Competition and Welfare," CEPR Discussion Papers 574, C.E.P.R. Discussion Papers.
    3. Bottasso, Anna & Sembenelli, Alessandro, 2001. "Market power, productivity and the EU Single Market Program: Evidence from a panel of Italian firms," European Economic Review, Elsevier, vol. 45(1), pages 167-186, January.
    4. Oscar Bajo Rubio & Carmen Díaz-Roldán, "undated". "A General Framework for the Macroeconomic Analysis of Monetary Unions," Working Papers on International Economics and Finance 01-06, FEDEA.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. Chris Allen & Michael Gasiorek & Alasdair Smith, 1998. "The competition effects of the Single Market in Europe," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(27), pages 440-486.
    7. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers 631, Board of Governors of the Federal Reserve System (U.S.).
    8. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644, Elsevier.
    9. Harry Flam, 1992. "Product Markets and 1992: Full Integration, Large Gains?," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 7-30, Fall.
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    Cited by:

    1. Antonio G. Gómez-Plana & Oscar Bajo-Rubio, "undated". "Algunos efectos del mercado único europeo sobre la economía espanola: Un análisis a través de un modelo de equilibrio general aplicado," Studies on the Spanish Economy 213, FEDEA.

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    More about this item

    Keywords

    Economic integration; pro-competitive effect; price-cost margins;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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