Competitiveness and Integration of Product Markets

This article develops a two-country, two-sector model with imperfect competition in one sector and asymmetric labor market structures in the sense that trade unions have wage bargaining power in one country whereas the labor market is competitive in the other country. We use a new approach to model product market integration, and it turns out that the unionized country gains from integration in terms of welfare, and, if the initial level of integration is relatively low, experiences an increase in employment and investment. Copyright Kluwer Academic Publishers 2000