In an oligopoly, prior to choosing quantities/prices, each¯rm has an opportunity to form pair-wise collaborative links with other¯rms. These pair-wise links lower costs of production of the¯rms which form a link. The collection of pair-wise links de¯nes a collaboration network. We study stable and e±cient networks under di®erent types of market competition. We¯nd that except under extreme competition, a la Bertrand,¯rms have an incentive to collaborate with their competitors to lower costs of production. We¯nd that two simple architectures, the complete network, where every¯rm has a collaboration link with every other¯rm, and the network with a dominant group, which contains a large number of completely connected¯rms and several isolated¯rms, are stable under di®erent market conditions. We also observe that stable networks are often e±cient from a social point of view.

We study a setting with many countries; in each country there are firms that can sell in the domestic as well as foreign markets. Countries can sign bilateral free-trade agreements that lower import tariffs and thereby facilitate trade. We allow a country to sign any number of bilateral free-trade agreements. A profile of free-trade agreements defines the trading regime. Our principal finding is that, in symmetric settings, bilateralism is consistent with global free trade. We also explore the effects of asymmetries across countries and political economy considerations on the incentives to form trade agreements.

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The recent proliferation of free trade agreements (FTAs) has resulted in an increasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the participating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a signi…cant fraction of FTA formations that would not otherwise be predicted by countries'economic characteristics.