Working Paper: CEPR ID: DP4110
Authors: Bernard Hoekman; Kamal Saggi
Abstract: Motivated by discussions in the World Trade Organization (WTO) on multilateral disciplines with respect to competition law, we develop a two-country model that explores the incentives of a less-developed country (LDC) to offer increased market access (via a tariff reduction) in exchange for a ban on foreign export cartels by its developed country (DC) trading partner. We show that such a bargain is feasible and can generate a globally welfare maximizing outcome. We also explore the incentives for bilateral cooperation when the LDC uses transfers to ?pay? for competition enforcement by the DC. A comparison of the two cases shows that there exist circumstances in which the stick (i.e. the tariff) is more effective in sustaining bilateral cooperation than the carrot (i.e. the transfer). Furthermore, the scope for cooperation is maximized when both instruments are utilized. An implication of the analysis is that LDCs have incentives not to bind tariffs in the absence of an explicit WTO prohibition of export cartels.
Keywords: Development; Export Cartels; Market Access; Oligopoly
JEL Codes: F12; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| LDC's tariff policy (F13) | enforcement of competition policy by DC (L49) |
| LDC's tariff policy (F13) | incentives for cooperation (C71) |
| ban on export cartels by DC (L42) | globally welfare-maximizing outcome (D69) |
| lack of WTO prohibitions on export cartels (F13) | adverse welfare outcomes for LDCs (O19) |
| LDC's ability to impose tariffs (F13) | compliance from DC (Y20) |
| optimal use of tariffs (H21) | LDC's bargaining power in negotiations with DC (F69) |