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Strategic trade policy with endogenous choice of quality and asymmetric costs

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  • Zhou, Dongsheng
  • Spencer, Barbara J.
  • Vertinsky, Ilan

Abstract

This paper examines the strategic trade policy incentives for investment policies towards quality improvements in a vertically differentiated exporting industry. Firms first compete in qualities and then export to a third country market based on Bertrand or Cournot competition. Optimal policies are asymmetric across the two producing countries. Under Bertrand competition, the low-quality country subsidizes investment to raise export quality, while the high-quality country imposes a tax so as to reduce the quality of its already high quality exports. Under Cournot competition, the results are reversed with a tax in the low-quality country and a subsidy in the high-quality country.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 56 (2002)
Issue (Month): 1 (January)
Pages: 205-232

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Handle: RePEc:eee:inecon:v:56:y:2002:i:1:p:205-232

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, Elsevier, vol. 37(3-4), pages 197-218, November.
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  13. Bond, Eric W., 1988. "Optimal commercial policy with quality-differentiated products," Journal of International Economics, Elsevier, Elsevier, vol. 25(3-4), pages 271-290, November.
  14. Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002. "Strategic trade policy with endogenous choice of quality and asymmetric costs," Journal of International Economics, Elsevier, Elsevier, vol. 56(1), pages 205-232, January.
  15. Aoki, Reiko & Prusa, Thomas J., 1997. "Sequential versus simultaneous choice with endogenous quality," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 15(1), pages 103-121, February.
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  21. Analysis, A Welfare & Das, Satya P. & Donnenfeld, Shabtai, 1987. "Trade policy and its impact on quality of imports," Journal of International Economics, Elsevier, Elsevier, vol. 23(1-2), pages 77-95, August.
  22. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
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