Trade costs and the timing of competition policy adoption

Trade costs and the timing of competition policy adoption

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Article ID: iaor20111778
Volume: 44
Issue: 1
Start Page Number: 171
End Page Number: 200
Publication Date: Feb 2011
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: , ,
Keywords: game theory
Abstract:

This paper first presents stylized evidence showing how the date of the adoption of competition policy is correlated with country size. Smaller countries tend to adopt competition policy later. We then present a theoretical model with countries of different size, trade costs, and firms competing la Cournot. In the model we show that reduced trade costs following from increasing globalization affect countries differently depending on their size. This has implications for the incentives to introduce competition policy. The predictions of the model are consistent with the empirical regularity presented.

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