| NOTAS: | "That collusion among sellers is detrimental to buyers is a central tenet in economics. In the
context of trade, we provide an oligopoly model, using only standard ingredients, in which collu-
sion can raise consumer surplus. A differentiated-product duopoly operates in two geographically-
separated markets. Each market is home to a single ? firm, but can import from the foreign ?firm.
Since shipping across markets is costly, every ? firm has a cost advantage in its home market. Con-
sumers treat the two goods as horizontally-differentiated substitutes and their preferences are
identical in both markets. Under duopolistic competition, the markup on the imported variety
is low relative to the home good: there are conditions in which a perfect cartel raises the price
of the imported good and lowers the price of the home good, raising welfare for most consumers.
A similar consumer-surplus-enhancing possibility result applies to autarky. We argue that our
analysis may have broader applicability beyond the spatial setting." |
