On multimarket collusion and trade policies

Abstract

We analyze the impact of strategic government policies on trade and welfare when an international duopoly sells differentiated products in geographically-separated markets, and cross-hauling incurs a transportation cost. We compare competition between firms to multimarket collusion. In contrast to no-policy settings, where trade volumes are lower under collusion than under competition, with strategic trade policies, the volume of trade is lower under competition. Collusion increases trade, resulting in higher welfare relative to competition.