IDEAS home Printed from https://ideas.repec.org/a/jed/journl/v36y2011i2p61-86.html
   My bibliography  Save this article

Income Distribution, Spillover Effects And Choice Of Product Quality

Author

Listed:
  • Soma Roy

    (Department of Economics, Dum Dum Motijheel College)

Abstract

We consider an MNC that is originated from a developed country where income is more or less evenly distributed and serves there a high quality product with the help of sophisticated technology of production. Under liberalized policy this MNC enters into a developing economy where income distribution is highly unequal. Due to prior experience of production it possesses a cost advantage in producing appropriate product quality in the developing country described by the spillover effect. It is shown that this discriminating monopolist serves a lower quality product in the developing country without any cost advantage. This happens due to its uneven income distribution. As spillover effect starts to rise, the product qualities between the countries differentiate more. At the same time profit of MNC rises. This may provide an explanation why MNCs are so eager to enter into a developing country. The developing country also gains in terms of welfare.

Suggested Citation

  • Soma Roy, 2011. "Income Distribution, Spillover Effects And Choice Of Product Quality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(2), pages 61-86, June.
    • Handle: RePEc:jed:journl:v:36:y:2011:i:2:p:61-86
    as

    Download full text from publisher

    File URL: http://www.jed.or.kr/full-text/36-2/4.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Acharyya, Rajat, 2005. "Quality discrimination among income constrained consumers," Economics Letters, Elsevier, vol. 86(2), pages 245-251, February.
    2. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-353, September.
    3. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    4. Josef Zweimüller & Johann K. Brunner, 2005. "Innovation And Growth With Rich And Poor Consumers," Metroeconomica, Wiley Blackwell, vol. 56(2), pages 233-262, May.
    5. Marjit, Sugata & Kabiraj, Tarun, 1993. "Income distribution and the contractionary effect of protection : A theoretical analysis," Economics Letters, Elsevier, vol. 41(4), pages 399-405.
    6. Analysis, A Welfare & Das, Satya P. & Donnenfeld, Shabtai, 1987. "Trade policy and its impact on quality of imports," Journal of International Economics, Elsevier, vol. 23(1-2), pages 77-95, August.
    7. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    9. Kabiraj, Tarun & Roy, Soma, 2006. "Effects of Liberalization on Domestic Product Quality," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 273-293.
    10. Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November.
    11. Adugna Lemi, 2004. "Foreign Direct Investment, Host Country Productivity And Export: The Case Of U.S. And Japanese Multinational Affiliates," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 163-187, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Onur A. Koska, 2020. "Sourcing product quality for foreign market entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 669-702, August.
    2. Gregory S. Amacher & Erkki Koskela & Markku Ollikainen, 2005. "Quality Competition and Social Welfare in Markets with Partial Coverage: New Results," Bulletin of Economic Research, Wiley Blackwell, vol. 57(4), pages 391-405, October.
    3. Aurora García‐Gallego & Nikolaos Georgantzís, 2009. "Market Effects of Changes in Consumers' Social Responsibility," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 235-262, March.
    4. Nathan H. Miller, 2008. "Competition When Consumers Value Firm Scope," EAG Discussions Papers 200807, Department of Justice, Antitrust Division.
    5. Ya‐chin Wang & Leonard F.s. Wang, 2009. "Equivalence Of Competition Mode In A Vertically Differentiated Duopoly With Delegation," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 577-590, December.
    6. Julia Cagé, 2014. "Media Competition, Information Provision and Political Participation," SciencePo Working papers Main hal-03602440, HAL.
    7. Luciano Fanti & Luca Gori, 2013. "Stability Analysis in a Bertrand Duopoly with Different Product Quality and Heterogeneous Expectations," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 481-501, December.
    8. Luigi Filippini, 1999. "Leapfrogging in a Vertical Product Differentiation Model," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 245-256.
    9. repec:hal:spmain:info:hdl:2441/16juu6v6rg8rq8nl0u1grb4jm6 is not listed on IDEAS
    10. repec:ebl:ecbull:v:4:y:2008:i:34:p:1-10 is not listed on IDEAS
    11. Tanmoyee Chatterjee & Ajitava Raychaudhuri, 2004. "Product Quality, Income Inequality And Market Structure," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 51-84, June.
    12. Julia Cagé, 2014. "Media Competition, Information Provision and Political Participation," SciencePo Working papers hal-03602440, HAL.
    13. Buehler, Benno & Schuett, Florian, 2014. "Certification and minimum quality standards when some consumers are uninformed," European Economic Review, Elsevier, vol. 70(C), pages 493-511.
    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, vol. 56(1), pages 205-232, January.
    15. Acharyya, Rajat & Garcia-Alonso, Maria D.C., 2006. "Self-interested international income redistribution and access to health care innovation," European Journal of Political Economy, Elsevier, vol. 22(2), pages 322-336, June.
    16. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    17. Stefan Napel & Gunnar Oldehaver, 2011. "A dynamic perspective on minimum quality standards under Cournot competition," Journal of Regulatory Economics, Springer, vol. 39(1), pages 29-49, February.
    18. José Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Trade and Industrial Policy of Transition Economies," CESifo Working Paper Series 446, CESifo.
    19. Stefan Napel & Gunnar Oldehaver, 2007. "Static Costs vs. Dynamic Benefits of a Minimum Quality Standard under Cournot Competition," Discussion Papers 23, Aboa Centre for Economics.
    20. Yoshinari Miyamoto, 2021. "Strategic outsourcing and quality choice: Is a vertical integration model sustainable?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1332-1351, July.
    21. Francisco Martínez-Sánchez, 2007. "Why Does The Pirate Decide To Be The Leader In Prices?," Working Papers. Serie AD 2007-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    22. José Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Procompetitive Trade Policies," CESifo Working Paper Series 597, CESifo.

    More about this item

    Keywords

    Income Distribution; Product Quality; Trade Liberalization;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jed:journl:v:36:y:2011:i:2:p:61-86. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sung Y. Park (email available below). General contact details of provider: https://edirc.repec.org/data/eccaukr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.