Market Segmentation, Market Integration and Tacit Collusion

This paper shows that moving from market segmentation to market integration (i.e. firms can no longer discriminate among markets) may have anti-competitive effects in a repeated game setting in which a simple trigger strategy is the enforcement strategy. In particular, we show that two countries can never both experience pro-competitive gains and that two similar countries always both experience anti-competitive effects from market integration. We show that the same conclusions hold when trade liberalization is understood as being a decrease in bilateral barriers to trade followed by the switch from market segmentation to market integration.