Abstract
The North American Free Trade Agreement (NAFTA) was designed to reduce tariff rates between Mexico, Canada and the U.S.A. over a period of ten years. However, lower tariff rates are only available to firms that comply with complicated and costly NAFTA filing regulations. Such regulations raise costs of small firms relative to large firms in a domestic industry which engages in trade between NAFTA countries. This implication of NAFTA regulations can lead to increased concentration in domestic industries, an hypothesis which can be tested as the transition period comes to an end. Finally, our model suggests an explanation for why the levels of trade from the U.S.A. to Mexico have been lower than general expectations.
Similar content being viewed by others
References
Carlton, Dennis W. and Jeffrey M. Perloff (1994) Modern Industrial Organization, 2nd edn.Glenview, Illinois: Scott, Foresman.
Gould, David M. (1998) 'Has NAFTA Changed North American Trade?' Economic Review, The Federal Reserve Bank of Dallas, pp. 12–23.
Krattenmaker, Thomas G. and Steven C. Salop (1986) 'Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power over Price', The Yale Law Journal, 96, 209–293.
The North American Free Trade Agreement (1994).
Salop, Steven C. and David T. Scheffman (1987) 'Cost-Raising Strategies', Journal of Industrial Economics, 36, 19–34.
Steagall, Jeffrey W. and Ken Jennings (1996) 'Unions, PAC Contributions, and the NAFTA Vote', Journal of Labor Research, 17, 515–521.
Varian, Hal R. (1984) Intermediate Microeconomics, 2nd edn. New York: W.W. Norton.
Williamson, Oliver E. (1968) 'Wage Rates as a Barrier to Entry: The Pennington Case in Perspective', Quarterly Journal of Economics, 82, 85–116.
Rights and permissions
About this article
Cite this article
Depken, C.A., Ford, J.M. NAFTA as a Means of Raising Rivals' Costs. Review of Industrial Organization 15, 103–113 (1999). https://doi.org/10.1023/A:1007796825076
Issue Date:
DOI: https://doi.org/10.1023/A:1007796825076