The International Handbook of Competition
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The International Handbook of Competition

Edited by Manfred Neumann and Jürgen Weigand

This indispensable Handbook examines both economic and legal aspects of competition policy and industrial organization. It provides a scholarly review of the state of the art regarding economic theory, empirical evidence and standards of legal evaluation. The book aims primarily at furthering our understanding of the interplay between economic reasoning and legal expertise by concentrating on the fundamental issues and principles underlying competition policy.
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Chapter 4: Trade Policy and Competition Policy: Conflict versus Mutual Support

Eric Bond


4 Trade policy and competition policy: conflict vs. mutual support Eric Bond 1 Introduction Achieving allocative efficiency is a primary goal of trade liberalization and of competition policy. Trade barriers impose costs or restrictions on actions of foreign firms that do not apply to domestic firms. When markets are perfectly competitive, the discriminatory nature of trade barriers prevents goods from being produced in the lowest cost location. Trade liberalization is a means of achieving an efficient international allocation of resources. Competition policy, on the other hand, is primarily focused on limiting actions of firms that might restrict competition in the domestic market. The 1994 OECD interim report on convergence of competition policies notes that ‘There is general agreement that the basic objective of competition policy is to protect and preserve competition as the most appropriate means of ensuring the efficient allocation of resources ... in free market economies.’ There are two problems with this simple characterization, in which trade liberalization policy is aimed at achieving equal market access by all firms and competition policy is aimed at preventing anti-competitive actions within the domestic market. The first is that countries often depart from efficiency motives in setting their trade and competition policies. Large countries may benefit at the expense of other countries by imposing tariffs, since the cost of the tariff is shifted onto the foreign suppliers. In addition, special interest groups that benefit from trade barriers may successfully lobby for the imposition of tariffs...

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