The Competitive Impact of International Trade

The Case of Import Liberalization of the Japanese Oil Product Market

Sadao Nagaoka, Fukunari Kimura

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper analyzes the competitive impact of the recent import liberalization of the Japanese oil product market. In response to the import liberalization in March 1996, not only did the market price of gasoline decline sharply but also its domestic production kept rising and did not decline relative to imports. Moreover, its price fell substantially before the actual liberalization of the import. This paper demonstrates both theoretically and empirically that the theory of implicit cartel can explain such features of the impact of import liberalization very well. The paper also identifies the significantly positive welfare impact of such liberalization due to the expansion of supply in a market with a large tax wedge between price and cost and, possibly more importantly, due to the transformation of competitive conduct from unproductive investment for cartel-rent shifting into price cuts. J. Japan. Int. Econ., December 1999, 13(4), pp. 397-423. Hitotsubashi University; and Keio University. Copyright 1999 Academic Press. Journal of Economic Literature Classification Numbers: L40, F12, K21.

Original languageEnglish
Pages (from-to)397-423
Number of pages27
JournalJournal of the Japanese and International Economies
Volume13
Issue number4
DOIs
Publication statusPublished - 1999 Dec
Externally publishedYes

Fingerprint

world trade
import
liberalization
market
cartel
market price
taxes
rent
welfare
Japan
International trade
Oil
Import
Liberalization
Product market
supply
costs
economics
Cartel

Keywords

  • Implicit cartel
  • Import liberalization
  • Rent dissipation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

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abstract = "This paper analyzes the competitive impact of the recent import liberalization of the Japanese oil product market. In response to the import liberalization in March 1996, not only did the market price of gasoline decline sharply but also its domestic production kept rising and did not decline relative to imports. Moreover, its price fell substantially before the actual liberalization of the import. This paper demonstrates both theoretically and empirically that the theory of implicit cartel can explain such features of the impact of import liberalization very well. The paper also identifies the significantly positive welfare impact of such liberalization due to the expansion of supply in a market with a large tax wedge between price and cost and, possibly more importantly, due to the transformation of competitive conduct from unproductive investment for cartel-rent shifting into price cuts. J. Japan. Int. Econ., December 1999, 13(4), pp. 397-423. Hitotsubashi University; and Keio University. Copyright 1999 Academic Press. Journal of Economic Literature Classification Numbers: L40, F12, K21.",
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