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Location Costs, Product Quality, and Implicit Franchise Contracts

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Author Info

  • Justus Haucap
  • Christian Wey
  • Jens Barmbold

Abstract

In the literature on international trade, very little attention has been given to informational asymmetries between firms and consumers with respect to product quality. The few economic models that analyze the question of how asymmetric information about product quality might affect trade flows treat product quality as exogenous. In contrast, our model takes product quality as an endogenous variable, i.e. firms can choose the quality they wish to produce. In this case, location costs can signal product quality under certain conditions and thereby affect international trade flows. More specifically, intra-industry trade in vertical differentiated experience goods can be determined by information asymmetries about product quality. ZUSAMMENFASSUNG - (Standortkosten, Produktqualität und implizite Franchiseverträge) In der internationalen Handelstheorie ist der Tatsache, daß die Konsumenten in vielen Fällen nur unvollständige Information über die Produktqualität besitzen, kaum Rechnung getragen worden. Die wenigen Arbeiten, die die Wirkungen asymmetrischer Information zwischen Herstellern und Konsumenten auf den internationalen Handel untersuchen, behandeln die Produktqualität als exogene Variable. Im Gegensatz hierzu wird in diesem Beitrag Produktqualität als eine endogene Variable angesehen, die von den Unternehmen gewählt werden kann. Es wird argumentiert, daß in diesem Fall die Standortkosten zur Signalisierung der Produktqualität eines Unternehmens herangezogen werden können. Es zeigt sich, daß unter bestimmten Bedingungen die geeignete Wahl von standortspezifischen variable Kosten in Verbindung mit Standortaustrittskosten zu einem Trenngleichgewicht führen kann, in dem an einem relativ teuren Standort Hochqualitätsprodukte und an einem relativ billigen Standort Niedrigqualitätsprodukte hergestellt werden. Aus diesen Überlegungen folgt, daß intra-industrieller Handel in vertikal differenzierten Erfahrungsgütern durch Informationsasymmetrien über die Produktqualität und internationalen Unterschieden in den spezifischen Standortkosten erklärt werden kann. Aufgrund der Anreizwirkungen der Standortkostenstrukur auf die Wahl der Produktqualität wird das Verhältnis zwischen Landesregierung und Unternehmen als ein implizites Franchiseverhältnis interpretiert.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 98-08.

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Length: 34 pages
Date of creation: Sep 1998
Date of revision:
Publication status: Published in the Journal of International Economics , Vol. 52, October 2000, pp. 69-87.
Handle: RePEc:wzb:wzebiv:fsiv98-8

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Keywords: country-of-origin effects; location costs; product quality; intra-industry trade;

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References

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Citations

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Cited by:
  1. Riveiro, Dolores, 2008. "Environmental policy and commercial policy: The strategic use of environmental regulation," Economic Modelling, Elsevier, vol. 25(6), pages 1183-1195, November.
  2. Justus Haucap & Christian Wey, 1999. "Standortwahl als Franchisingproblem," CIG Working Papers FS IV 99-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  3. Eric Rasmusen, 2007. "A Reputation Model of Quality in North-South Trade," Working Papers 2007-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  4. Bagwell, Kyle & Staiger, Robert W., 2003. "Informational aspects of foreign direct investment and the multinational firm," Japan and the World Economy, Elsevier, vol. 15(1), pages 1-20, January.

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