A Note on the Size of Trading Blocs, Market Power and World Welfare Effects

Abstract

We prove that the normalization rule in Bond and Syropoulos (1996, Journal of International Economics 40, 411-437) that sets the world price of good 1 as the numeraire causes asymmetry in the Nash equilibrium. Such rule contradicts their symmetric assumption when one derives other blocs' optimum tariffs from their viewpoints. We further show that under symmetry their results are consistent only in the case of two trading blocs.