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Price-cost margins and economic integration: How important is the pro-competitive effect?

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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?," Economic Working Papers at Centro de Estudios Andaluces E2004/62, Centro de Estudios Andaluces.
    • Handle: RePEc:cea:doctra:e2004_62
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    References listed on IDEAS

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    1. 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.
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    5. 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.).
    6. 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.
    7. 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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