Competition and Free Trade

158 Pages·2018·1.422 MB·English

by  Pascal Salin

Competition and Free Trade
The concepts of competition and free trade are absolutely central for the under-
standing of human societies but are also often subject to fear and criticism. It
is not possible to understand what competition really is without referring to the
concept of freedom; free trade must be understood, also, as the way to expand the
scope of competition.
This book analyzes the two concepts as closely interlinked by approaching
them in two parts. The first, ‘Competition’, introduces the reader to the tradi-
tional competition model, and explores the dynamics and range of the term in an
authoritative way. The second part, ‘Free Trade’, examines the different types of
trade, and analyzes them in a wealth of contexts, from customs duties to import
quotas. With discussions of protectionist arguments, politics, liberalization, and
history, the author presents an overview of how competition and free trade operate
in the real world.
This book dispels the fears and misunderstandings that have developed around
these central pillars of the modern economy. It is essential reading for those study-
ing international economics, international trade, political economy, or corporate
finance.
Pascal Salin is Honorary Professor of Economics at Université Paris – Dauphine,
France.
Routledge Foundations of the Market Economy
Edited by Mario J. Rizzo, New York University, and Lawrence
H. White, George Mason University
For a full list of titles in this series, please visit www.routledge.com/series/SE0104
A central theme in this series is the importance of understanding and assessing the
market economy from a perspective broader than the static economics of perfect
competition and Pareto optimality. Such a perspective sees markets as causal pro-
cesses generated by the preferences, expectations, and beliefs of economic agents.
The creative acts of entrepreneurship that uncover new information about prefer-
ences, prices, and technology are central to these processes with respect to their
ability to promote the discovery and use of knowledge in society.
The market economy consists of a set of institutions that facilitate voluntary
cooperation and exchange among individuals. These institutions include the legal
and ethical framework as well as more narrowly ‘economic’ patterns of social
interaction. Thus the law, legal institutions, and cultural and ethical norms, as well
as ordinary business practices and monetary phenomena, fall within the analytical
domain of the economist.
30 Markets, Morals, and Policy-making
A new defence of free-market economics
Enrico Colombatto
31 Understanding the Culture of Markets
Virgil Storr
32 Producing Prosperity
An inquiry into the operation of the market process
Randall G. Holcombe
33 Austrian Economics Re-examined
The economics of time and ignorance
Mario Rizzo and Gerald P O’Driscoll Jr
34 Economic and Political Change after Crisis
Prospects for government, liberty, and the rule of law
Edited by Stephen H. Balch and Benjamin Powell
35 Competition and Free Trade
Pascal Salin
Competition and Free Trade
Pascal Salin
First published 2018
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2018 Pascal Salin
The right of Pascal Salin to be identified as author of this work has been
asserted by him in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Salin, Pascal, author.
Title: Competition and free trade / Pascal Salin.
Description: New York : Routledge, 2018. | Includes bibliographical
references and index.
Identifiers: LCCN 2017016233 | ISBN 9781138103436 (hardback) |
ISBN 9781315102726 (ebook)
Subjects: LCSH: Competition. | Free trade. | Protectionism.
Classification: LCC HF1414 .S25 2018 | DDC 338.5/22—dc23
LC record available at https://lccn.loc.gov/2017016233
ISBN: 978-1-138-10343-6 (hbk)
ISBN: 978-1-315-10272-6 (ebk)
Typeset in Times New Roman
by Apex CoVantage, LLC
For Balthazar,
my grandson,
to whom I wish a happy life in freedom.

Contents
Foreword xi
PART I
Competition 1
Introduction 3
1 The traditional competition model 5
The characteristics of ‘atomistic’ competition 5
The implications of the traditional theory 8
2 Breaches of atomistic competition 19
Monopoly 19
Oligopoly 24
Economic optimum in the absence of atomistic competition 25
3 A critical appraisal of the atomistic theory 29
A critical review of the assumptions of the model of pure and
perfect competition 29
A critical review of the concept of superprofit 32
4 The entrepreneur and the dynamics of competition 39
The freedom to enter a market 39
Going back to price discrimination 47
The consequences of free competition 48
5 True and false breaches of competition 53
Public violations of free competition 53
Natural monopolies and cartels 57
viii Contents
6 How far competition? 63
The limits of contractual freedom 63
A comprehensive approach to competition 66
PART II
Free trade 73
Introduction 75
 7   Justifications for free trade  77
Trade between individuals 77
International trade 79
8 The effects of protectionism 83
The analysis of customs duties 83
The analysis of import quotas 88
Effective protection 91
9 True and false barriers to trade 95
Tax policy 95
Subsidies and regulations 99
10 Protectionist arguments 103
The infant-industry argument 103
‘Priority’ and ‘strategic’ national activities 105
Protection against dumping 106
Balance of payments equilibrium 111
Protecting employment 113
Taxes and ‘optimum’ customs duties 115
Retaliation tariffs 117
11 The role of political processes 119
The game of interests 119
Protectionism as a hidden tax 120
Pressure groups 122
12 Trade liberalization 125
Unilateral liberalization 125
Trade agreements 126
Customs unions 128
The European ‘single market’ 129
Contents ix
13 H istorical landmarks 133
From antiquity to the modern era 133
The modern era 133
From the nineteenth century until the First World War 134
The twentieth century before the Second World War 135
After the Second World War 135
Debates about ‘globalization’ 136
Bibliography 139
Index 141