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What is increase return ?

What is increase competition ?

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Economic integration is the commercial
policy of discriminatively reducing or
eliminating trade barriers only among the
nations joining together
oncepts of ompetition
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ompatibility Benefits for Users
Lower prices due to increased competition among producers of
compatible products
ompatibility prevents hold up by a monopoly supplier once
customers are locked in: hence second-sourcing
´Network externalitiesµ: the more users of compatible
equipment the better for some technologies e.g. telephones
Benefits from experience (´learning by usingµ) or investment in
costs of adoption can be carried over to compatible products
ompatibility Benefits for Producers
Greatly increased demand for the product which means:
sales growth
advantages to cost leaders
may be well worthwhile to move from a large share of a
small market to a smaller share of a large market if you
have scale economies in production
lower input prices
larger market for materials & components, or skilled
labor may be more competitive, or upstream firms may
have economies of scale

aptive market: customers tend to become ´locked inµ to a

particular standard: higher margins
ompatibility Benefits for Producers
Improvements in production technology: rationalization,
simplification, increased quality etc.

Resolution of uncertainty: standards provide direction for R&D

efforts

Payoffs to incremental innovators who can improve product

performance while remaining within the standard
onditions More Likely to Increase Welfare
1.The higher the preunion trade barriers of member countries
are, the greater probability it is that formation of the customs
union will create trade among members rather than divert trade
from nonmembers to members.
2.The lower the customs unions barriers are on trade with the
rest of the world, the less likely it is that formation of the
customs union will lead to costly trade diversion, because they
have already traded each other before.
3.The greater the number of countries in the union and the
larger their size are, the greater probability it is that low-
low-cost
producers fall within the union.
 onditions More Likely to Increase
Welfare
4.The more competitive the member nations are, the greater
opportunities there are for specialization in production and
trade creation with the formation of the customs union.

5.The closer geographically the members of the customs union

are, the less likely it is that the transportation costs become an
obstacle to trade creation among members.

6.The greater the preunion trade and economic relationship

among potential members of the customs union is, the greater
the opportunities are for significant welfare gains as a result of
the formation of the customs union.