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Rules of Origin and Market Power

Author

Listed:
  • Chung, Wanyu

    (University of Birmingham and CEPR)

  • Perroni, Carlo

    (University of Warwick and CESifo)

Abstract

We study how domestic content requirements in Free Trade Areas (FTAs) affect market power and market structure in concentrated intermediate goods markets. We show that content requirements increase oligopolistic markups beyond the level that would obtain under an equivalent import tariff, and we document patterns in Canadian export data and US producer price data that align with the model’s predictions : producers of intermediate goods charge comparatively higher prices when the associated final goods producers are more constrained by FTA origin requirements and by Most Favoured Nation (MFN) tariffs for both intermediate and final non-FTA goods.

Suggested Citation

  • Chung, Wanyu & Perroni, Carlo, 2020. "Rules of Origin and Market Power," The Warwick Economics Research Paper Series (TWERPS) 1300, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1300
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    References listed on IDEAS

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    1. Haaland, Jan I. & Wooton, Ian, 2021. "Divergent Integration," Discussion Paper Series in Economics 10/2021, Norwegian School of Economics, Department of Economics.
    2. Ornelas, Emanuel & Turner, John L., 2024. "The costs and benefits of rules of origin in modern free trade agreements," Journal of International Economics, Elsevier, vol. 147(C).

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    More about this item

    Keywords

    Free Trade Areas ; Content Requirements ; Market Power JEL codes: F12 ; F13 ; F14 ; D43;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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