Keele Research Repository

We analyze the impact of strategic government policies on market share and welfare when
an international duopoly sells differentiated products in geographically-separated markets. Two
firms, located in different countries, sell their products in both countries. Cross-hauling of goods
not only incurs a transportation cost, but also generates pollution. We analyze two scenarios: (i)
firms compete in both markets and (ii) firms collude across the two markets, i.e., multimarket
collusion. Domestic market coverage by the home firm is lower, i.e., trade volume is higher,
under collusion relative to competition. The collusive market shares and trade volumes are
closer to the first-best and welfare is higher under collusion than under competition.