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Procompetitive Trade Policies

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Author Info
Jose-Luis Moraga ()
Jean-Marie Viaene ()

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Abstract

We study the procompetitive effects of trade policies against a foreign oligopoly in a model of vertical product differentiation. We show that a uniform tariff policy like the Most Favored Nation (MFN) clause is always welfare superior to free trade because of a pure rent-extraction effect. However, a nonuniform tariff policy is, in addition, procompetitive and thus yields a higher level of social welfare. The first best policy typically consists of giving a subsidy to the country producing low quality and levying a tariff on the country producing high quality. Regional Trade Agreements (RTYs) are examples of nonuniform tariff policies. We show that these arrangements yield higher welfare than free trade and, moreover, that a RTA with a low-quality producing country yields larger gains than a RTA with a high-quality producing country.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 597.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_597

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Related research
Keywords: endogenous quality; most favored nation (MFN) clause; procompetitive policies; regional trade agreements;

Other versions of this item:

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hertel, Thomas W., 1994. "The 'procompetitive' effects of trade policy reform in a small, open economy," Journal of International Economics, Elsevier, vol. 36(3-4), pages 391-411, May. [Downloadable!] (restricted)
  2. Reitzes, James D, 1992. "Quality Choice, Trade Policy, and Firm Incentives," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 817-35, November. [Downloadable!] (restricted)
  3. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Blackwell Publishing, vol. 41(2), pages 113-31, June. [Downloadable!] (restricted)
  4. Jose-Luis Moraga & Jean-Marie Viaene, 2001. "Trade and Industrial Policy of Transition Economies," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Cremer, Helmuth & Thisse, Jacques-Francois, 1994. "Commodity Taxation in a Differentiated Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 613-33, August. [Downloadable!] (restricted)
    Other versions:
  6. Feenstra, Robert C, 1988. "Quality Change under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 131-46, February. [Downloadable!] (restricted)
  7. Schweinberger, Albert G, 1996. "Procompetitive Gains from Trade and Comparative Advantage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 361-75, May.
  8. 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. [Downloadable!] (restricted)
  9. Fontagné, Lionel & Freudenberg, Michael & Péridy, Nicolas, 1998. "Intra-Industry Trade and the Single Market: Quality Matters," CEPR Discussion Papers 1959, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-26, May. [Downloadable!] (restricted)
  11. Krishna, Kala, 1990. "Protection and the Product Line: Monopoly and Product Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 87-102, February. [Downloadable!] (restricted)
    Other versions:
  12. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier. [Downloadable!] (restricted)
    Other versions:
  13. Fershtman, Chaim & Gandal, Neil & Markovich, Sarit, 1999. "Estimating the Effects of Tax Reform in Differentiated Product Oligopolistic Markets," CEPR Discussion Papers 2107, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  14. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November. [Downloadable!] (restricted)
  15. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2000. "Quantity restrictions and endogenous quality choice," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1259-1277, December. [Downloadable!] (restricted)
  16. Collie, David, 1991. "Export subsidies and countervailing tariffs," Journal of International Economics, Elsevier, vol. 31(3-4), pages 309-324, November. [Downloadable!] (restricted)
    Other versions:
  17. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  18. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May. [Downloadable!] (restricted)
  19. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2002. "Tariffs, quality reversals and exit in vertically differentiated industries," Journal of International Economics, Elsevier, vol. 58(2), pages 467-492, December. [Downloadable!] (restricted)
  20. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June. [Downloadable!] (restricted)
  21. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter. [Downloadable!] (restricted)
  22. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January. [Downloadable!] (restricted)
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  23. John C. Ries, 1993. "Voluntary Export Restraints, Profits, and Quality Adjustment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 688-706, August. [Downloadable!] (restricted)
  24. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  25. Massimo MOTTA & Jean-François THISSE & Antonio CABRALES, 1996. "On the Persistence of Leadership or Leapfrogging in International Trade," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9625, Université de Lausanne, Faculté des HEC, DEEP.
    Other versions:
  26. Krishna, Kala, 1987. "Tariffs versus quotas with endogenous quality," Journal of International Economics, Elsevier, vol. 23(1-2), pages 97-112, August. [Downloadable!] (restricted)
  27. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn. [Downloadable!] (restricted)
  28. Dongsheng Zhou & Barbara J. Spencer & Ilan Vertinsky, 2000. "Strategic Trade Policy with Endogenous Choice of Quality and Asymmetric Costs," NBER Working Papers 7536, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  29. Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roberto Hernan & Praveen Kujal, 2005. "Import Tariffs, Quality Investment And Welfare," Economics Working Papers we056116, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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