This paper analyzes the effects of international openness on vertical integration. Vertical integration can confer a negative externality, by thinning the market for inputs and thus worsening opportunism problems; this induces strategic complementarity and multiple equilibria in the integration...

In trade liberalization between a large country and a small one, if production requires irreversible investments, anticipated negotiations may make the small country strictly worse off than a fully anticipated trade war, and indeed worse off than autarchy. The reason is that investors,...