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Economic Integration and Quality Standards in a Duopoly Model with Horizontal and Vertical Product Differentiation

Author

Listed:
  • Hansen, Jørgen Drud

    (Aarhus School of Business)

  • Møller Nielsen, Jørgen Ulff

    (Aarhus School of Business)

Abstract

This paper examines the effect of trade barriers on quality levels in a duopoly model for two countries where products are both vertically and horizontally differentiated. In the absence of quality regulation the producer in the large country produces a higher quality than the producer in the small country. Moreover, the quality levels between the two producers converge in case of market integration i.e. when the trade barrier is reduced. If a common minimum quality standard is introduced, which forces the low quality producer to increase the quality of his product, the high quality producer reacts strategically by lowering the quality of his product. On unregulated markets, market integration increases welfare in both countries if they are almost of similar size. However, if the countries are very asymmetrical with respect to size, market integration may harm welfare in the large country. Introducing a minimum quality standard also has ambiguous effects on welfare.

Suggested Citation

  • Hansen, Jørgen Drud & Møller Nielsen, Jørgen Ulff, 2006. "Economic Integration and Quality Standards in a Duopoly Model with Horizontal and Vertical Product Differentiation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 837-860.
    • Handle: RePEc:ris:integr:0380
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    Citations

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    Cited by:

    1. Mina Baliamoune-Lutz & Stefan Lutz, 2010. "Pre-emption, Predation, and Minimum Quality Standards," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 111-123.
    2. Stefan Lutz & Mario Pezzino, 2012. "International Strategic Choice of Minimum Quality Standards and Welfare," Journal of Common Market Studies, Wiley Blackwell, vol. 50(4), pages 594-613, July.
    3. Jørgen Hansen & Jørgen Nielsen, 2009. "Dumping and Injury Margins in Markets with Horizontal as well as Vertical Product Differentiation," Journal of Industry, Competition and Trade, Springer, vol. 9(3), pages 233-250, September.

    More about this item

    Keywords

    Vertical product differentiation; Horizontal product differentiation; Market integration; Duopoly; Minimum quality standard;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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