Market integration and imperfect competition in labor and product markets

We analyze the consequences of product market integration in a simple two-country, two-sector, general-equilibrium model with imperfect competition due to economies of scale. In contrast to the existing literature we take explicit account of the labor-market structures in the integrating economies. It turns out that the specific labor-market structures are very important for how integration affects total production and product market structure in a particular economy. However, integration always gives rise to a welfare gain in both economies.I have benefitted from comments by an anonymous referee, a coeditor of this journal, and by participants in a workshop arranged by CIE in April 1992, at the University of Aarhus, and by participants at the EEA conference in Dublin 1992.