DP5480 Antitrust in Open Economies

Author(s): Joseph Francois , Henrik Horn

Publication Date: February 2006

Keyword(s): antitrust policy , competition policy , merger policy , trade and imperfect competition , FDI

JEL(s): F12 , F3 , L4

Programme Areas: Industrial Organization , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP5480.asp

We examine antitrust rules in a two-county general equilibrium trade model, contrasting national and multilateral (cooperative) determination of competition policy, exploring the properties of the policy equilibrium. It is not imperfect competition, but variation in competitive stance between sectors that matters for trading partners. Beggar-thy-neighbor competition policies relate to countries' comparative advantages, and hurt the factor intensively used, or specific to, the imperfectly competitive sector. They also create a competitive advantage for export firms. FDI can be pro-competitive in this context, reducing the scope for beggar-thy-neighbor policies and reducing the gains from a multilateral competition agreement.