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Trade Effects of Minimum Quality Standards with and without Deterred Entry

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  • Lutz, Stefan

Abstract

In a model of vertical product differentiation, duopolistic firms face quality-dependent costs and compete on quality and price in two segmented markets. Minimum quality standards, set uniformly or according to the principle of mutual recognition, can be used to increase welfare. The analysis includes entry deterrence by the choice of a particular standard. With identical costs, both industries remain in the market under either regulatory alternative. Mutual recognition is the optimal policy choice for either region. With significantly different costs, the full-harmonization outcome includes only one firm and leads to a maximal sum of regional welfares.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1384.

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Date of creation: Apr 1996
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Handle: RePEc:cpr:ceprdp:1384

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Keywords: Entry; Oligopoly; Product Differentiation; Quality Standards; Trade;

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Cited by:
  1. Stefan Lutz & Mina Baliamoune-Lutz, 2003. "Mutual Recognition of National Minimum Quality Standards may Support International Convergence," Journal of Industry, Competition and Trade, Springer, vol. 3(4), pages 293-311, December.
  2. Sheldon, Ian M. & Roe, Brian E., 2008. "Vertical Differentiation and Credence Goods: Harmonized Labeling and Gains from International Integration," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6340, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. T. Huw Edwards, 2004. "Trade and Strategic Regulatory Bias in Monopolistic Industries," Discussion Paper Series 2004-21, Department of Economics, Loughborough University, revised Sep 2004.
  4. 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, 07.
  5. Giulio ECCHIA & Luca LAMBERTINI, 2001. "Endogenous Timing and Quality Standards in a Vertically Differentiated Duopoly," Discussion Papers (REL - Recherches Economiques de Louvain) 2001021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. T.Huw Edwards, 2007. "Horizontal Regulatory Protection. Its appeal and implictions in a linear Cournot duopoly," Discussion Paper Series 2007_05, Department of Economics, Loughborough University, revised Feb 2007.
  7. Joanna Poyago-Theotoky & Huw Edwards, 2012. "Regulatory protection when firms decide first on technical collaboration and R&D," Working Papers 2012.05, School of Economics, La Trobe University.
  8. Lutz, Stefan & Turrini, Alessandro Antonio, 2000. "Skills, Labour Costs and Vertically Differentiated Industries: A General Equilibrium Analysis," CEPR Discussion Papers 2373, C.E.P.R. Discussion Papers.
  9. Wolfgang Kerber & Roger Van den Bergh, 2008. "Mutual Recognition Revisited: Misunderstandings, Inconsistencies, and a Suggested Reinterpretation," Kyklos, Wiley Blackwell, vol. 61(3), pages 447-465, 08.
  10. Lutz, Stefan, 2005. "Regulatory standards can lead to predation," ZEI Working Papers B 05-2005, ZEI - Center for European Integration Studies, University of Bonn.
  11. Naoto Jinji & Tsuyoshi Toshimitsu, 2010. "Strategic R&D Policy in a Quality-Differentiated Industry with More than Two Exporting Countries," Discussion papers e-09-001, Graduate School of Economics Project Center, Kyoto University.
  12. Ian Sheldon & Brian Roe, 2008. "Vertical product differentiation and credence goods: Mandatory labeling and gains from international integration," EconoQuantum, Revista de Economia y Negocios, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 5(1), pages 9-33, Julio - D.
  13. Alberto AMURGO PACHECO, 2006. "Mutual Recognition Agreements and Trade Diversion: Consequences for Developing Nations," IHEID Working Papers 20-2006, Economics Section, The Graduate Institute of International Studies, revised Jun 2007.
  14. T.Huw Edwards, 2009. "Regulatory Protection When Firms Move First," Discussion Paper Series 2009_19, Department of Economics, Loughborough University, revised Nov 2009.
  15. Lutz, Stefan & Turrini, Alessandro, 2006. "A general equilibrium model with vertically differentiated industries, skilled labour and trade," Economic Modelling, Elsevier, vol. 23(1), pages 1-19, January.
  16. Werner Smolny, 2003. "Determinants of innovation behaviour and investment estimates for west-german manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(5), pages 449-463.
  17. Marco Trombetta, 2003. "International regulation of audit quality: full harmonization or mutual recognition? An economic approach," European Accounting Review, Taylor & Francis Journals, vol. 12(1), pages 3-27.
  18. Stephan Marette, 2007. "Minimum safety standard, consumer's information and competition," Working Papers 17613, Institut National de la Recherche Agronomique, France.
  19. 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.

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