Market Integration, Competition, and Welfare

The current debate on the likely impact of completion of the market in the European Community focuses crucially on the nature of the market structure. It has been suggested that "1992" will move an industry from a segmented-markets equililbrium to one in which the national markets are fully integrated. We examine the effects of this form of market completion on prices, consumer welfare, and profits using a theoretical model augmented by numerical simulations. We find that the effects of market integration can change qualitatively, dependent on the assumptions made about demand, the barriers to trade, and the degree of concentration in the market.Published in connection with a visit at the IIES