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On tariff and quality innovation in a market with discrete preferences

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  • Acharyya, Rajat
  • Banerjee, Swapnendu

Abstract

In a market for a quality-differentiated good with heterogeneous set of consumers and a local firm facing competitive imports from abroad, we examine private and social incentives for quality innovation. For differential tariff regime, we show that both the private and social gains increase with the tariff protection for the low-quality segment of the domestic market for any given tariff on high-quality imports. But for some very high costs of innovation, the local firm may not undertake a socially desirable innovation. The pro-competitive effect, on the other hand, ensures that quality-distortion-at-the-bottom occurs only for very high levels of tariffs.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 3 ()
Pages: 917-925

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:917-925

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Quality innovation; Tariff; Quality distortion; Social gain from innovation;

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  1. Aw, Bee Yan & Roberts, Mark J., 1986. "Measuring quality change in quota-constrained import markets: The Case of U.S. Footwear," Journal of International Economics, Elsevier, vol. 21(1-2), pages 45-60, August.
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  7. Subodh, Kandamuthan, 2002. "Market Concentration, Firm Size and Innovative Activity: A Firm-level Economic Analysis of Selected Indian Industries under Economic Liberalization," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  9. Christoph R. Weiss & Antje Wittkopp, 2005. "Retailer concentration and product innovation in food manufacturing," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(2), pages 219-244, June.
  10. Acharyya, Rajat, 2005. "Quality discrimination among income constrained consumers," Economics Letters, Elsevier, vol. 86(2), pages 245-251, February.
  11. Gabszewicz, Jean J. & Wauthy, Xavier Y., 2002. "Quality underprovision by a monopolist when quality is not costly," Economics Letters, Elsevier, vol. 77(1), pages 65-72, September.
  12. Kim, Joo-Han & Kim, Jae-Cheol, 1996. "Quality choice of multiproduct monopolist and spill-over effect," Economics Letters, Elsevier, vol. 52(3), pages 345-352, September.
  13. Bhattacharya, Haimanti & Innes, Robert, 2007. "Does Market Concentration Promote or Reduce New Product Introductions? Evidence from US Food Industry," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9352, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November.
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