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Minimum Quality Levels And Import Tariffs

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  • Roberto Hernan

    ()

  • Praveen Kujal

    ()

Abstract

In a vertically differentiated duopoly the use of import tariffs by an importing country decreases domestic welfare if import tariffs are chosen once the firms have made their quality decisions. In this paper we propose import tariffs that are contingent on some minimum quality level (MQL) being met. A firm is taxed if it fails to meet these MQL. Import tariffs conditional on fulfilling the MQL are welfare improving over free trade. Investment in quality increases, market coverage goes up and consumer surplus increases. Firm profits decrease relative to free trade under such tariffs.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we034817.

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Date of creation: Oct 2003
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Handle: RePEc:cte:werepe:we034817

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  1. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  2. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  3. Shivakumar, Ram, 1993. "Strategic trade policy : Choosing between export subsidies and export quotas under uncertainty," Journal of International Economics, Elsevier, vol. 35(1-2), pages 169-183, August.
  4. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
  5. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
  6. 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.
  7. Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
  8. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-45, November.
  9. 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.
  10. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  11. 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.
  12. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
  13. Cooper, Russell & Riezman, Raymond, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industrie s," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 129-40, January.
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