DP15897 Rules of Origin and Market Power

Author(s): Wanyu Chung, Carlo Perroni
Publication Date: March 2021
Keyword(s): Content Requirements, Free Trade Areas, market power
JEL(s): D43, F12, F13, F14
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15897

We study how regional content requirements in Free Trade Areas (FTAs) affect market power and market structure in concentrated intermediate goods markets. We show that content requirements increase oligopolistic markups beyond the level that would obtain under an equivalent import tariff, and we document patterns in Canadian export data and US producer price data that align with the model's predictions: producers of intermediate goods charge comparatively higher prices when the associated final goods producers are more constrained by FTA origin requirements and by Most Favoured Nation (MFN) tariffs for both intermediate and final non-FTA goods.