ABSTRACT
In this chapter we analyze a model of international oligopoly when customs unions are possible. We show that importer-exporter customs unions are pro-competitive in the sense that internally they will tend to have industries produce at their competitive output level, but will tend to exclude imports from non-member countries. Exporter customs unions are anti-competitive and will produce the monopoly output. We apply core theory to determine which unions would form. With one firm in each country the importer will form a union with the low cost exporter. With identical costs, but variable numbers of firms, when the number of firms is small an importer-exporter customs union forms. A union of the exporters will form if there are four or more firms in the world.
