How are you going to deal with citizenship/borders? I'm sure that plenty of the cities will take a stance against "illegal immigration". If all of the cities have different regulations for consumer goods that will make trade very problematic.
Allowing trade to be problematic will only harm that city itself. It is in the best interest of that city to ease trade.
Also, this would only work if there were a possibility to start a new city without having to receive permission from existing cities. Not sure how you would pull that off though.
* joepie91 gets flashbacks from SimCity