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Consumer-benefiting transport cost: The role of product innovation in a vertical structure

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  • Kazuhiro Takauchi

    (Faculty of Business and Commerce,Kansai University)

  • Tomomichi Mizuno

    (Graduate School of Economics, Kobe University)

Abstract

We study the effects of a reduction of transport cost on the firm's activity of product innovation and on consumer welfare. Firms engage in product R&D that increases the degree of product differentiation, purchase intermediate inputs from an exclusive supplier, and export their products to the foreign market paying a per-unit transport cost. Trade theory commonly asserts that zero transport cost maximizes consumer surplus. Contrary to this standard belief, we show that a positive transport cost can maximize consumer surplus. We also consider more general effects of R&D and show that our main results hold even in such case.

Suggested Citation

  • Kazuhiro Takauchi & Tomomichi Mizuno, 2020. "Consumer-benefiting transport cost: The role of product innovation in a vertical structure," Discussion Papers 2017, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2017
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    Cited by:

    1. Kazuhiro Takauchi & Tomomichi Mizuno, 2022. "Endogenous transport price, R&D spillovers, and trade," The World Economy, Wiley Blackwell, vol. 45(5), pages 1477-1500, May.

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