Trade liberalization and competitive behavior: A note assessing the evidence and the public policy implications

A strongly held piece of conventional wisdom is that liberalizing barriers to international trade stimulates increased competition, which, in tum, promotes lower domestic prices and increased efficiency. Against this background, competition policy authorities seem to be taking a relatively benign view of merger and acquisition activity that is presumed to be linked to trade liberalization. A stream of literature has recently emerged that raises questions about the magnitude and even the direction of the impact of trade liberalization on competition. This literature cautions against easing legislative restrictions on merger activity contingent on trade liberalization initiatives.