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Trade liberalization in vertically related markets

Author

Listed:
  • José J. Sempere Monerris

    (Universitat de València)

  • Rafael Moner Colonques

    (Universitat de València)

  • Amparo Urbano Salvador

    (Universitat de València)

Abstract

This paper looks into the desirability of trade liberalization for manufacturers, retailers and consumers. The analysis compares the move from the autarky situation to either one of free trade that entails a change in the distribution system or not. We also examine whether the interests of manufacturers and retailers about the preferred distribution system coincide, provided trade opens. We find that market integration is beneficial to all agents only under certain conditions on the degree of market asymmetry and the degree of product differentiation. Interestingly, if integration entails a change in the distribution system, the conflict between manufacturers and retailers strengthens since only retailers prefer free trade when markets are not too asymmetric and when interbrand competition is sufficiently strong. Furthermore, consumers can be harmed by trade and, in a setting without exclusivities, one country may experience a welfare decrease. Finally, the analysis of the strategic choice concerning exclusivity clauses uncovers that retailers and manufacturers never agree about their preference for endogenous distribution systems.

Suggested Citation

  • José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2010-09
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    International competition; vertical relationships.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other

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