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Does Mutual Recognition of National Minimum Quality Standards Support Regional Convergence?

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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 according to the principle of Mutual Recognition, can be used to increase welfare. The results of the one-shot game suggest that standards achieve initial convergence in terms of qualities produced and national welfares. Therefore, the static game is repeated in multiple periods and firms’ qualities in the previous period determine their costs. In an N-period game, quality standards will, in fact, lead to convergence in terms of qualities and national welfares.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1385.

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Date of creation: May 1996
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Handle: RePEc:cpr:ceprdp:1385

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Related research

Keywords: Oligopoly; Product Differentiation; Quality Standards; Regional Convergence; Trade;

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Cited by:
  1. Herguera, Iñigo & Lutz, Stefan, . "Trade policy and leapfrogging," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7214, Universidad Carlos III de Madrid.
  2. Lutz, Stefan, 2003. "Mutual Recognition of National Minimum Quality Standards may Support International Convergence," ZEW Discussion Papers 03-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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