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Price, Quality, and Variety: Measuring the Gains from Trade in Differentiated Products

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  • Gloria Sheu

Abstract

This paper explores the gains from trade in differentiated products from three channels: decreases in price, improvements in quality, and increases in variety. Using data on Indian imports of computer printers from 1996 to 2005, a period of trade liberalization, I find that quality was the leading source of welfare gains. Consumers would require a 65 percent decrease in all 1996 prices to be as well off as they were with the quality available in 2005. The contribution of price was slightly smaller, while variety lagged farther behind. These effects varied across buyers, as gains were largest for small businesses.

Suggested Citation

  • Gloria Sheu, 2014. "Price, Quality, and Variety: Measuring the Gains from Trade in Differentiated Products," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 66-89, October.
  • Handle: RePEc:aea:aejapp:v:6:y:2014:i:4:p:66-89
    Note: DOI: 10.1257/app.6.4.66
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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