Cartel Stability and Economic Integration

This paper revisits the notion that economic integration—modeled as a reduction of trade costs—may be anticompetitive, in the sense that it may reinforce the ability of an international cartel to maintain a collusive understanding about staying out of each other’s markets. The paper is novel in terms of introducing ad valorem and fixed trade costs in addition to the customary unit trade costs. It is shown that an anticompetitive effect, found for reductions in unit trade costs, may disappear once trade costs are ad valorem or fixed.